Strong 4Q numbers for MRCB

Malaysian Resources Corp Bhd
(Feb 10, RM2.28)

Maintain neutral at RM2.21 with revised target price RM2.46 (from RM2.30): MRCB recorded strong 4QFY10 earnings to lift its FY10 net profits to RM67.3 million against our forecast of RM45.1 million. Net profit almost doubled from RM34.6 million in FY09.

The group’s gross margin expanded to 13.2% from 11.1% year-on-year, while its profit before tax margin improved to 9.1% from 5.1%. MRCB’s earnings were driven by the ongoing infrastructure engineering and construction (E&C) income as well as improvement in property sales.

Year-to-date, MRCB has an outstanding order book of RM2 billion for its E&C division, of which half comes from the development of its KL Sentral project — Lot A (RM238 million), Lot G Retail (RM630 million) and Lot G Offices (RM280 million). The E&C is expected to remain the major contributor to the company’s earnings moving forward.

Over the next three years, MRCB will see progressive completion of the ongoing construction projects and property development within KL Sentral such as the KL Sentral Park completing in 2011, the Shell headquarters at 348 Sentral and NU Sentral Retail Mall completing in 2012. As there is a need to sustain similar earnings contribution from its KL Sentral income, MRCB indicated it is eyeing government landbank in prime locations.

Also, MRCB is reportedly to be the master developer of the proposed development of the Rubber Research Institute (RRI) land in Sungai Buloh.

We have raised our FY11 estimate by 14% to RM81.2 million from RM71.2 million, backed by continuous improvement in construction and engineering as well as property development divisions.

Potential catalysts:

(i) additional kicker to earnings could come from it being offered a leading role in the redevelopment of the 2,680-acre RRI land; and
(ii) if the RM8 billion Klang River clean-up job materialises.

Our sum-of-parts target price is raised by 7% from RM2.30 to RM2.46 based on the revised forecasts. From the current level to upside potential 11.8% (including a 0.5% dividend yield), hence we maintain our “neutral” call on the counter. — MIDF Research, Feb 10