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MRCB (CIMB Research) neutral; target price RM1.75

Malaysian Resources Corp Bhd

• Broadly in line; staying NEUTRAL. MRCB’s annualised 1Q10 core net profit made up 92% of our full-year forecast and 70% of consensus. We consider the results to be broadly in line with our projection as future quarters should be better. The performance was led by the property division’s ongoing development of KL Sentral and an improvement in the E&C division. We make no changes to our earnings forecasts or NEUTRAL call but raise our RNAV from RM2.37 to RM2.52 for balance sheet adjustments. We continue to apply a 30% discount to our RNAV, which increases our target price from RM1.66 to RM1.76. For exposure to the construction sector, we recommend a switch to WCT and Gamuda.

• Property boost in 1Q10. 1Q10 revenue rose 24.3% yoy, led by the property division’s 113% yoy surge and the E&C division’s 84% yoy growth. Property EBIT margin soared from 9% in 1Q09 to 26%. Property contributed 29% of group EBIT versus 3% in 1Q09. Despite the 84% jump in construction revenue, EBIT margin slid to 5% from 7% in 1Q09 due to the completion of the better-margin transmission line contracts. No dividends were declared, which was no surprise.

• RM3.9bn contracts in hand. MRCB’s outstanding order book stands at RM3.9bn, of which RM1.6bn comes from external jobs and the remaining RM2.3bn from construction of the remaining seven parcels at KL Sentral. The group has submitted bids for around RM1bn worth of contracts, of which~RM600m are private finance initiative (PFI) jobs. It is still one of the main contenders for the RM7bn LRT extension/upgrade and could bag 1-3 environmental jobs worth RM200m-300m.

• Conditional GO lapsed; Sg Buloh land attraction. EPF’s conditional takeover offer at RM1.50/share has lapsed as it did not fulfil the condition of achieving more than 50% stake in MRCB. It appears that shareholders are betting on earnings contributions from the 3,400 acres in Sg. Buloh which are earmarked for a largescale commercial/residential development. But it will take at least six months for the land title transfer to be completed and a year for the masterplan to be drawn up. MRCB may not be the sole or largest beneficiary but may take the lead role, i.e. that of project consultant or master planner. Based on our checks, the land is likely to be launched parcel by parcel over a period of as long as 10-15 years.
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