(Maintained) Malaysian Resources Corp - - More to come...Malaysian Resources Corp Malaysia Company Update

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  • Malaysia Company Update

    See important disclosures at the end of this report 1

    Powered by the EFA Platform

    28 March 2017 Property | Real Estate

    Malaysian Resources Corp Buy (Maintained)

    Target Price: MYR1.90

    Price: MYR1.62

    More To Come Market Cap: USD786m Bloomberg Ticker: MRC MK

    We are upbeat on MRCBs construction division. Given the recent news flow of China investments into the Bandar Malaysia, we believe MRCB is a potential candidate involving in the development of this transit oriented development. Upon official signing, MRCB would likely see a significant boost in its property portfolio and construction orderbook. We raise our TP to MYR1.90 (from RM1.66, 17% upside). Maintain BUY.

    Share Data

    Avg Daily Turnover (MYR/USD) 5.60m/1.26m

    52-wk Price low/high (MYR) 1.03 - 1.68

    Free Float (%) 40

    Shares outstanding (m) 2,280

    Estimated Return 17%

    Shareholders (%)

    Employees Provident Fund 33.9

    Gapurna SB 17.0

    Lembaga Tabung Haji 8.3

    Share Performance (%)

    YTD 1m 3m 6m 12m

    Absolute 21.8 11.7 20.0 20.0 35.0

    Relative 15.5 8.9 12.0 15.5 33.2

    Source: Bloomberg

    Source: Bloomberg

    A better version of KL Sentral in Bandar Malaysia. Investors should

    continue to like Malaysian Resources Corp (MRCB) given its potential involvement in the integrated transport terminal project in Bandar Malaysia. The project has been in the limelight recently. The recent announcement of the corporate exercise involving the consortium related to Bandar Malaysia development, as well as the setting up of Kuala Lumpur Internet City (KLIC) in Bandar Malaysia should indicate that the negotiation process on the transport hub could accelerate. MRCB, which has already signed a MOU with Wondrous Vista Development SB and Bandar Malaysia SB, is well-positioned to undertake the transport hub construction project, given its track record in building transit oriented developments (TOD).

    Potential boost in property portfolio. Of the 486 acres in Bandar Malaysia,

    60 acres have been earmarked for the development of the integrated transport terminal. Apart from building the terminal, we believe the consortium would also develop some other commercial components on the site, similar to the KL Sentral concept. The potential GDV for this 60 acres in Bandar Malaysia could be bigger than KL Sentrals MYR14bn, which occupies 72 acres of land, given that the latter started its development in early 2000 when property prices were still at low levels.

    Other stations and packages for high speed rail. While the construction of

    the high speed rail (HSR) line could be undertaken by some foreign parties, apart from the main terminal in Bandar Malaysia, MRCB is also eyeing the construction jobs of the other five HSR stations in Malaysia, and possibly some sub packages for the track works. The construction of HSR is said to cost MYR60bn, and the tender could be called in late 2017/2018.

    Still expecting strong contract flows. Other than the Bandar Malaysia and

    HSR contracts, we understand that MRCB is also actively bidding for other infrastructure and 1Malaysia Housing Programme (PR1MA) housing construction works. Tenderbook as at Dec 2016 is worth MYR6.3bn and we believe the amount is higher now. Outlook for orderbook replenishment is fairly positive, given its solid shareholding backing and bumiputera-controlled public listed company (PLC) status.

    Maintain BUY. We raise our TP to MYR1.90, as we raise our construction P/E

    multiple to 16x, in line with the re-rating of the construction sector. We also lower our discount to RNAV to 25% (from 30%) in view of the strong contract flows this year. MRCB is a potential election play. The stock is one of our Top Picks in the property sector.

    Source: Company data, RHB

    Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F

    Total turnover (MYRm) 1,697 2,408 2,298 2,513 2,792

    Reported net profit (MYRm) 326 267 183 196 211

    Recurring net profit (MYRm) 221 267 183 196 211

    Recurring net profit growth (%) 436.1 20.8 (31.7) 7.5 7.5

    Recurring EPS (MYR) 0.12 0.14 0.09 0.09 0.10

    DPS (MYR) 0.03 0.03 0.03 0.03 0.03

    Recurring P/E (x) 13.0 11.9 19.0 17.7 16.4

    P/B (x) 1.28 1.19 1.14 1.09 1.04

    P/CF (x) 3.2 6.9 25.0 16.7 8.5

    Dividend Yield (%) 1.5 1.7 1.7 1.7 1.7

    EV/EBITDA (x) 9.8 8.9 13.0 12.5 12.1

    Return on average equity (%) 15.3 10.3 6.1 6.3 6.5

    Net debt to equity (%) 123.8 73.1 81.6 83.2 85.7

    Our vs consensus EPS (adjusted) (%) 37.4 7.7 15.9

    85

    98

    112

    125

    138

    0.9

    1.1

    1.3

    1.5

    1.7

    Malaysian Resources Corp (MRC MK)Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS)

    5

    10

    15

    20

    25

    30

    Ma

    r-1

    6

    Ma

    y-1

    6

    Ju

    l-1

    6

    Se

    p-1

    6

    No

    v-1

    6

    Ja

    n-1

    7

    Vo

    l m

    Analyst

    Loong Kok Wen, CFA

    +603 9280 8861

    loong.kok.wen@rhbgroup.com

    http://www.efa.biz/mailto:loong.kok.wen@rhbgroup.com

  • Malaysian Resources Corp Malaysia Company Update

    28 March 2017 Property | Real Estate

    See important disclosures at the end of this report 2

    Financial Exhibits

    Financial model updated on : 2017-03-27.

    Asia

    Malaysia

    Property

    Malaysian Resources Corp

    Bloomberg MRC MK

    Buy

    Valuation basis

    25% discount to RNAV

    Key drivers

    i. New property sales; ii. Asset disposals; iii. New construction contracts.

    Key risks

    Weaker-than-expected market conditions

    Company Profile

    Malaysian Resources Corp (MRCB) is engaged in construction (niche strength in environmental projects), property development and investment and toll road operations. It is known for its transit-oriented developments, eg KL Sentral, Bukit Jalil City, Kwasa Damansara and Penang Sentral.

    Source: Company data, RHB

    Financial summary Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F

    Recurring EPS (MYR) 0.12 0.14 0.09 0.09 0.10

    EPS (MYR) 0.18 0.14 0.09 0.09 0.10

    DPS (MYR) 0.03 0.03 0.03 0.03 0.03

    BVPS (MYR) 1.27 1.36 1.42 1.48 1.55

    Weighted avg adjusted shares (m) 1,773 1,965 2,144 2,144 2,144

    Valuation metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F

    Recurring P/E (x) 13.0 11.9 19.0 17.7 16.4

    P/E (x) 8.8 11.9 19.0 17.7 16.4

    P/B (x) 1.28 1.19 1.14 1.09 1.04

    FCF Yield (%) (52.5) 7.8 (8.5) (11.3) (3.7)

    Dividend Yield (%) 1.5 1.7 1.7 1.7 1.7

    EV/EBITDA (x) 9.8 8.9 13.0 12.5 12.1

    EV/EBIT (x) 10.5 9.8 15.6 15.0 14.6

    Income statement (MYRm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F

    Total turnover 1,697 2,408 2,298 2,513 2,792

    Gross profit 160 236 276 296 314

    EBITDA 590 593 475 516 557

    Depreciation and amortisation (43) (57) (77) (86) (96)

    Operating profit 547 536 398 430 461

    Net interest (185) (176) (127) (138) (147)

    Income from associates & JVs 8 33 34 36 38

    Pre-tax profit 370 393 304 327 352

    Taxation (6) (74) (76) (82) (88)

    Minority interests (38) (52) (46) (49) (53)

    Recurring net profit 221 267 183 196 211

    Cash flow (MYRm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F

    Change in working capital 493 115 (132) (88) 85

    Cash flow from operations 893 459 139 208 408

    Capex (2,402) (210) (435) (599) (537)

    Cash flow from investing activities (2,774) (256) (435) (729) (537)

    Proceeds from issue of shares (7) 457 0 0 0

    Dividends paid (45) (44) (59) (40) (43)

    Cash flow from financing activities (355) (37) (59) (40) (43)

    Cash at beginning of period 661 522 722 531 528

    Net change in cash (2,236) 165 (354) (561) (173)

    Ending balance cash (1,576) 687 368 (30) 355

    Balance sheet (MYRm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F

    Total cash and equivalents 524 724 533 530 371

    Tangible fixed assets 3,748 3,900 4,258 4,771 5,211

    Intangible assets 317 253 253 253 253

    Total investments 5 34 34 34 34

    Total other assets 325 399 468 254 358

    Total assets 7,090 7,752 7,982 8,500 8,977

    Short-term debt 1,042 806 806 806 806

    Total long-term debt 2,345 2,131 2,331 2,531 2,631

    Other liabilities 146 161 161 161 161

    Total liabilities 4,777 4,727 4,789 5,124 5,400

    Shareholders' equity 2,260 2,926 3,048 3,182 3,330

    Minority interests 53 99 145 194 247

    Total equity 2,313 3,025 3,193 3,376 3,577

    Net debt 2,863 2,213 2,604 2,807 3,066

    Total liabilities & equity 7,090 7,752 7,982 8,500 8,977

    Key metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F

    Revenue growth (%) 12.0 41.9 (4.6) 9.3 11.1

    Recurrent EPS growth (%) 415.6 9.0 (37.4) 7.5 7.5

    Gross margin (%) 9.4 9.8 12.0 11.8 11.2

    Operating EBITDA margin (%) 34.8 24.6 20.6 20.5 20.0

    Net profit margin (%) 19.2 11.1 7.9 7.8 7.6

    Dividend payout ratio (%) 13.5 22.1 22.1 22.1 22.1

    Capex/sales (%) 141.6 8.7 18.9 23.8 19.2

    Interest cover (x) 2.44 2.49 2.38 2.41 2.47

  • Malaysian Resources Corp Malaysia Company Update

    28 March 2017 Property | Real Estate

    See important disclosures at the end of this report 3

    More To Come

    Building the next KL Sentral in Bandar Malaysia

    Bandar Malaysia has been in the limelight recently, particularly after the group of companies related to Bandar Malaysia development announced its corporate exercise. The recent announcement of the setting up of KLIC that would cater for the Digital Free Trade Zone at the KL International Airport (KLIA) Aeropolis launched by Aliba