MRCB not affected if Prasarana fails to secure additional RM10b funding to complete LRT3, says UOB KayHian

KUALA LUMPUR (July 9): UOB Kay Hian Securities (M) Sdn Bhd believes Malaysian Resources Corp Bhd (MRCB) would not be affected if Prasarana Malaysia Bhd is unable to raise additional funds to complete the construction of the third light rail transit (LRT3), which has reached 10% to-date. 

In September 2015, MRCB, in partnership with George Kent (M) Bhd, was selected by Prasarana as the project delivery partner (PDP) to construct LRT3, which costs RM9 billion and traversing 37km between Bandar Utama and Klang.

Under the PDP model, MRCB and its partner are responsible for the design and construction of LRT3, in addition to assuming the risks of cost overruns or delays. 

“At this stage, we believe the PDPs and Prasarana are in discussions to address this matter and there are no signs that Prasarana will take over the project from the PDPs to date,” UOB Kay Hian analysts said in a note to clients today.

The Star reported today that Prasarana is eyeing to take over the construction of the LRT3 from its project delivery partners (PDP), as the cost was said to have ballooned to RM15 billion, from the approved RM9 billion.

“Prasarana may seek additional budget from the government as the consortium currently has the approval to raise up to RM10 billion. To raise additional funds, the company may need Cabinet approval,” UOB Kay Hian added.

The research firm noted that the LRT3 cost escalation comes from design changes with adjustments to accommodate for new features and bigger capacity of 26 stations along the 37km stretch. 

As for MRCB, UOB Kay Hian said potential earnings from the LRT3 project could contribute 3% to the total net profit in financial year ending Dec 31, 2019 (FY19), and accounted for 4% of its sum-of-the-parts valuation. 

Amid an uncertain outlook, UOB Kay Hian is retaining its buy call on MRCB, which is backed by the Employees Provident Fund, with a 12-month target price of RM1.01.

UOB Kay Hian said the target price is at 20% discount to its SOTP valuation MRCB of RM1.26 per share, and pegged at 24.3 times of forward earnings.

MRCB shares ended the morning session half a sen or 0.83% lower at 60.0 sen, giving it for a market capitalisation of RM2.63 billion. — theedgemarkets.com

For more stories, download EdgeProp.my pullout here for free.