AmWatch - MRCB : Triumphs in LRT3 race, 7 Sep 2015

STOCK FOCUS OF THE DAY

MRCB : Triumphs in LRT3 race    Buy

We maintain BUY on MRCB with a fair value of RM1.65/share on an unchanged 40% to its NAV. MRCB has received a letter of appointment from Prasarana Malaysia to act as the Project Delivery Partner (PDP) for the Klang Valley LRT 3 (LRT3) project under a 50:50 JV with George Kent (Malaysia) Bhd.

Earlier reports indicated that this new line is expected to cost ~RM9bil (targeted completion: 2020)

The award validates our earlier conviction of the MRCB-George Kent JV’s status as a frontrunner for the LRT3 PDP role. Our optimism stemmed from the duo’s combined experience in railworks.

While we have lowered our FY15F net profit to account for some timing differences, our NAV is largely intact. Even without accounting for the LRT3 PDP, MRCB’s new contract wins YTD of RM643mil had already surpassed our previous assumptions of RM300mil.

Assuming a contract value of RM9bil (MRCB’s 50% stake: ~RM4.5bil), this new job could further boost the group’s total new contracts achieved YTD to ~RM5.1bil and bump up its external order book to a record RM6bil.

Based on:- (i) MRCB’s effective stake in the PDP (~RM4.5bil); (ii) PDP fee of 5% (vs. 6% for the MRT Line 1 project); and (iii) duration of five years (2016-2020), we estimate the LRT3 PDP contract to bump up MRCB’s FY16F/17F core net profit by 21%/35%. Its fair value will rise by ~6% to RM1.75/share (NPV@7%).

We have not assumed any contributions from the LRT3 project pending a definite agreement to be executed between the MRCB-George Kent JV and Prasarana. The stock is currently trading at a steep 64% discount to its NAV.

Others :

Genting Plantation : Looking forward to FY16F    Buy

Economic Update : Trade surplus narrows to RM2.4bil in July

QUICK TAKE

Plantation Sector : Newsflow for week 1 to 4 September              Overweight

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Property : Cheap entry for Ho Hup

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