Malaysian Resources Corporation - Uncertainty remains on EDL Hold

- MRCB reported earnings of RM22mil for 1QFY12 which is in-line with ours and consensus estimates – covering 27% and 22% of estimates respectively. 

- Construction earnings recovered in the current quarter – EBIT margins of 5% - as the company made provisions for the construction of EDL in the previous quarter. 

- Meanwhile there were stronger recognition from KL Sentral i.e. at Lot G which comprises of two office towers and a hotel.

- However we are maintaining our numbers at this juncture given stronger progress billings from these buildings would also result in stronger minority interest as MRCB holds 60% stake in the JV. On the flipside, the take-up rate for the Sentral Residences remains circa 70%-80% at an average pricing of RM1,200psf. 

- Meanwhile the tolling for Eastern Dispersal Link remains uncertain at this juncture and we believe any decisions by the government will only be finalised after the general elections. As we have highlighted earlier, in a worst case scenario, the highway will incur RM30milRM40mil losses in the first year. 

- There were also talks of government acquiring the highway from MRCB but we do not think this is feasible as it is not in the best interest of the government especially bulk of the resources are being channelled for other key infrastructure projects namely the KV MRT.

- MRCB is still in the mix for the remaining viaduct  packages for the KV MRT project, although the group may find winning the bid a big challenge given the intense bidding.  

- On the other hand, tenders for the beautification portion of the River of Life project worth up to RM1bil could be called in 2HFY12. MRCB’s JV with Ekovest has the upper-hand, we believe, given their expertise. Nonetheless any potential involvement in the development of selected pockets of land along the river will not be in the immediate-term.

- MRCB’s share price has retraced by some 28% since its most recent high (RM2.22/share) in February and is now trading at FY12F PE of 28x but this is still demanding compared to its conglomerate peers of about 17x.  We maintain our HOLD rating on Malaysian Resources Corporation (MRCB) with our fair value of RM2.30/share is currently placed under review.  

Source: AmeSecurities