AmWatch - MRCB : Bags RM485mil jobs in Desaru Buy, 25 Jun 2015

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MRCB : Bags RM485mil jobs in Desaru    Buy

We reiterate BUY on MRCB with an unchanged fair value of RM2.22/share on an unchanged 20% discount to its NAV. Yesterday, MRCB announced that it had won three construction jobs worth a combined RM485mil in Desaru Coast, Johor from Destination Resorts and Hotel (DRH).

The three awards are for:- (1) A conference centre and one level of basement car  (RM61mil); (2) Desar Desaru (RM212mil) – a 386-key hotel in nine blocks of five-storey buildings; and (3) Westin Desaru Resort (RM211mil) – a 275-key hotel in four blocks of four to five storeys buildings. This is MRCB’s first construction win for FY15F. This follows two other contracts that it secured in Johor last year. They were the J Land Tower in JB (RM197mil) and Aman Desaru project (RM141mil) in Kota Tinggi.  We make no changes to our earnings forecast, as the latest award forms part of our new orderbook assumptions for FY15F.

MRCB’s prospects are perking up moving into 2H15. Earlier this week, the local press reported that the MRCB-George Kent JV is among three outfits that are shortlisted for the Project Delivery Partner (PDP) role for the RM9bil Klang Valley LRT 3 line (LRT 3). This reaffirms our earlier conviction that the duo could be a key beneficiary of the LRT 3 project given:- (i) the combined experience in rail works; and (ii) MRCB’s proven track record in managing the KL Sentral transport hubs.

Beyond this, we draw comfort that MRCB’s conscious efforts to rebuild its balance sheet is taking shape with the completion of the MRCB-Quill REIT deal. Any future asset injections into the REIT and its associated recurring income should provide MRCB with more headroom to deleverage. At the moment, MRCB’s net gearing is ~1.4x (FY14: 1.5x). There could upside risk to our earnings, as we have yet to account for:- (i) a 41% stake in Quill Capita Management (QCM); and (ii) the recently acquired German Embassy land (GDV: ~RM1.3bil).

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