- We maintain our HOLD rating on Malaysian Resources
Corporation (MRCB), with our fair value of RM2.30/share currently under review.
- It has been reported in the media that a JVCo comprising
MRCB and DMIA are the frontrunners for a rail job – worth RM3bil – for freight
trains to ease the congestion in Kuala Lumpur’s central hub and could clinch
the job early next year.
- The JVCo has proposed to build a railway line for freight
trains, linking Serendah to Port Klang to ease the bottleneck at KL Sentral
area.
- This plan is not something new as it is already part of
Suruhanjaya Pengangkutan Awam Darat’s (SPAD) master plan.
- Recall that Keretapi Tanah Melayu Bhd (KTMB) was directed
by the government to carry out a preliminary engineering and route alignment
study for the planned Serendah-Port Klang-Seremban bypass line in September
2008, albeit there has been little headway since then.
- Both parties certainly have experience in rail-related
jobs, whereby MRCB was the key player in the KL Sentral project and is
currently involved in the construction of both the Ampang and Kelana Jaya LRT
extension works.
- Meanwhile, DMIA was involved in the construction of the
Central Link KLIA Expressway and the Rail Link to West Port. Nonetheless,
competition may be intense given that there are other reputable players such as
IJM, Loh & Loh and Gamuda.
- From a valuation standpoint, MRCB is currently trading at
a steep discount of 39% to its estimated SOP value and at a multiple of 27x to
its FY13F earnings. We believe the stock would continue to trade sideways given
the continued uncertainty on the Eastern Dispersal Link (EDL) issue.
- While the government has been reported to have committed
to acquire the expressway, the lingering concerns would be on the timing of the
acquisition, especially with General Election just around the corner and
whether the preliminary compensation – to cover the EDL’s operating expenses –
would be forthcoming.
Source: AmeSecurities
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