Malaysian Resources Corp Bhd (Feb 10, RM2.17)
Downgrade to market perform with revised fair value of RM2.11 from RM2.40: MRCB guided for RM30 million to RM40 million start-up losses in FY12 ending December from the newly completed 100%-owned Eastern Dispersal Link (EDL) in Johor. The losses will come predominantly from an expected two-month gap between the opening of the toll road to the public in March this year and the commencement of tolling in May.
MRCB projects a base-case average daily traffic volume of about 75,000 to 80,000 cars and expects the toll road to turn profitable in FY13.
MRCB guided for very thin margins from the RM1.4 billion LRT line extension project it secured in August 2011. Out of the total RM1.4 billion, only about RM450 million worth of main works is earmarked to be carried out directly by MRCB (that fetches 3% to 4% margins).
The remaining jobs, comprising predominantly stations, depots and anciliary works worth about RM950 million in total, will be awarded separately by Prasarana Negara Bhd to other contractors. MRCB will only earn a 1% management fee.
MRCB was less “chatty” about the redevelopment project on the 1,085ha Rubber Research Institute (RRI) land in Sungai Buloh. The management just described it as “still work in progress”.
FY12 to FY14 net profit forecasts are cut by 14% to 44% largely to reflect RM30 million to RM40 million start-up losses in FY12 from the EDL, as well as lower blended construction earnings before interest and tax (Ebit) margins in FY12 to FY14.
Risks include: (i) new construction contracts secured in FY12 to FY14 coming in below our target of RM1.5 billion per year; (ii) rising input costs; and (iii) EDL tolling commencing later than May this year.
We have turned less enthusiastic on construction stocks as we believe their share price performance is likely to be muted over the next six to 12 months as the market begins to price in a higher risk premium for construction stocks ahead of the general election that must be held by March 2013.
Indicative fair value for MRCB is cut by 12% from RM2.40 to RM2.11 based on sum-of-parts. Valuations are no longer as compelling. We therefore downgrade our call on MRCB from “trading buy” to “market perform”. — RHB Research Institute, Feb 10
This article appeared in The Edge Financial Daily, February 13, 2012.
Downgrade to market perform with revised fair value of RM2.11 from RM2.40: MRCB guided for RM30 million to RM40 million start-up losses in FY12 ending December from the newly completed 100%-owned Eastern Dispersal Link (EDL) in Johor. The losses will come predominantly from an expected two-month gap between the opening of the toll road to the public in March this year and the commencement of tolling in May.
MRCB projects a base-case average daily traffic volume of about 75,000 to 80,000 cars and expects the toll road to turn profitable in FY13.
MRCB guided for very thin margins from the RM1.4 billion LRT line extension project it secured in August 2011. Out of the total RM1.4 billion, only about RM450 million worth of main works is earmarked to be carried out directly by MRCB (that fetches 3% to 4% margins).
The remaining jobs, comprising predominantly stations, depots and anciliary works worth about RM950 million in total, will be awarded separately by Prasarana Negara Bhd to other contractors. MRCB will only earn a 1% management fee.
MRCB was less “chatty” about the redevelopment project on the 1,085ha Rubber Research Institute (RRI) land in Sungai Buloh. The management just described it as “still work in progress”.
FY12 to FY14 net profit forecasts are cut by 14% to 44% largely to reflect RM30 million to RM40 million start-up losses in FY12 from the EDL, as well as lower blended construction earnings before interest and tax (Ebit) margins in FY12 to FY14.
Risks include: (i) new construction contracts secured in FY12 to FY14 coming in below our target of RM1.5 billion per year; (ii) rising input costs; and (iii) EDL tolling commencing later than May this year.
We have turned less enthusiastic on construction stocks as we believe their share price performance is likely to be muted over the next six to 12 months as the market begins to price in a higher risk premium for construction stocks ahead of the general election that must be held by March 2013.
Indicative fair value for MRCB is cut by 12% from RM2.40 to RM2.11 based on sum-of-parts. Valuations are no longer as compelling. We therefore downgrade our call on MRCB from “trading buy” to “market perform”. — RHB Research Institute, Feb 10
This article appeared in The Edge Financial Daily, February 13, 2012.
