LRT3 on track to be completed by March 2025, says RHB Research

• As of end 3Q2023, line-wide progress of the LRT3 construction stood at 86.5%, estimated for completion by March 2025. 

KUALA LUMPUR (Oct 12):  RHB Research maintained its "buy" call on Malaysian Resources Corp Bhd (MRCB) with a 55 sen target price (TP), on the premise of the timely delivery of the Light Rail Transit (LRT3) project.

“We visited the LRT3 depot at Johan Setia (Klang) and came away feeling upbeat on the project. While it is nearing completion, Malaysian Resources Corp’s track record in LRT3, in addition to other rail projects such as the Mass Rapid Transit (MRT) 2, may enable it to clinch opportunities from upcoming rail related projects — Penang LRT and MRT3,” said the research house in a note today (Oct.12). 

As of end 3Q2023, line-wide progress of the LRT3 construction stood at 86.5%, estimated for completion by March 2025. 

“Therefore, we estimate the 13.5% balance of works for the LRT3 or RM1.6 billion of billings (9.8% of orderbook) and an RM48 million profit after tax (PAT) (assuming a 3% net margin) to be recognised by MRCB over 3Q2023 until 1Q2025,” said RHB Research.

Meanwhile, a near-term re-rating catalyst would be securing flood mitigation projects, particularly in Selangor, which the group was pre-qualified for, worth RM500 million.

“We also favour the stock for its strong orderbook-to-revenue cover ratio of more than five times and a sizeable land bank of 1,153 acres (RM33 billion gross development value) — providing ample supply of land for future projects," it said.

The stock is trading at a 0.45 time FY2024F P/BV (price-to-book value), below -2SD (standard deviation) from the KL Construction Index’s five-year mean P/BV.

MRCB, in a previous joint venture (JV) with George Kent (GK), was initially appointed as project delivery partner (PDP) by Prasarana for the 37-kllometre LRT3 in September 2015, with an initial budget of RM9 billion (excluding land acquisition costs) at that time.

This RM9 billion amount did not include other costs such as PDP fees (6%), other consultant fees, operational and overhead costs, as well as interest payments during construction, which resulted in a total cost of RM31.7 billion.

However, in July 2018, the LRT3 project cost was reduced by about 47% to RM16.6 billion. Post cost reduction, the PDP model was restructured to a fixed price contract in November 2018 — MRCB-GK JV as a turnkey contractor — worth RM11.9 billion.

Later in September 2021, MRCB took over GK’s 50% stake in the JV company formed to construct LRT3 for RM53 million — effectively recognising 100% of the project from then onwards. The LRT3 project was circa 60% completed, meaning that MRCB had RM4.7 billion of billings to recognise until completion. 

MRCB shares settled two sen or 4.35% higher at 48 sen at noon break on Thursday, translating into a market capitalisation of RM2.14 billion.

Year-to-date, the counter has gained some 71%.

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