Bandar Malaysia’s revival could be a new catalyst for MRCB

Malaysian Resources Corp Bhd (April 22, RM1.06)

Maintain buy with a higher target price of RM1.05: Following a cabinet meeting last week, the government has decided to revive the Bandar Malaysia project since its termination in May 2017. It was announced by Prime Minister Tun Dr Mahathir Mohamad, adding that certain changes will be made to its original plan.

In earlier estimates, Bandar Malaysia’s gross development value (GDV) was reportedly at RM200 billion and to be developed within 25 years. The 486-acre (196.68ha) development on the old Sungai Besi air force base, will house a transit-oriented development, a global business hub and a retail lifestyle destination. Accordingly, the whole development would potentially take place over 15 to 25 years.

In January 2017, Malaysian Resources Corp Bhd (MRCB) entered into a non-binding memorandum of understanding with Wondrous Vista Development Sdn Bhd and TRX City Sdn Bhd. The idea was to collaborate in developing an integrated transportation terminal at Bandar Malaysia, housing the Kuala Lumpur-Singapore high-speed rail line’s terminus. Following Bandar Malaysia’s termination in May 2017, we believe the agreement should have lapsed as it was only valid for six months.

Following the project’s revival, we think it could unmask a meaningful catalyst for MRCB. While details are still scarce, we believe opportunities are ample given the latest GDV estimate of RM140 billion. Positively, Dr Mahathir had mentioned the project will prioritise bumiputera participation and the use of local content. Therefore, we think MRCB is well-positioned to participate in this project, adding to its track record as transportation developer after building PJ Sentral and KL Sentral.

Recently, the group won RM323 million worth of contracts to construct the Sungai BesiUlu Kelang Elevated Expressway. The amount was added to previous unbilled jobs, arriving at RM21.8 billion of outstanding order book. The huge outstanding amount will keep the group busy in the long term. However, for the construction division, we believe a temporary drag could come from the delayed progress of the light rail transit 3 (LRT3), commencing in the second half of financial year ending Dec 31, 2019. While the concern should not be overlooked, we reckoned the impact is manageable.

Downside risks to our call include a lower-than-expected recognition from the LRT3 project, and lower-than-expected property sales during the year. — MIDF Research, April 22

This article first appeared in The Edge Financial Daily, on April 23, 2019.

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