KEY INVESTMENT HIGHLIGHTS

• Revenue slipped -15.4%yoy in 3QFY24 to RM426.3m; core earnings up 5.9x to RM8.9m, above expectations
• 9MFY24 Construction and engineering revenue came in lower by - 26.0%yoy but operating profit rose +65.0% to RM145.0m, strongly contributed by LRT3
• Outstanding order book of RM15b; tender book fell to RM3.0b from RM33B
• Maintain BUY with an unchanged TP of RM0.67

Above expectations. Malaysian Resources Corporation Berhad's (MRCB's) revenue in 3QFY24 dipped -15.4%yoy to RM426.3m while its core earnings grew 5.9x to RM8.9m. 9MFY24 revenue saw a fall of - 30.9%yoy due to reduced contributions from completed property development projects in 2023, ongoing projects still in early stages, and lower revenue from the nearing completion of the LRT3 construction project. The 9MFY24 core earnings grew 3.0x to RM63m which is above estimates, making up 94.1% of our full-year estimates, and 92.8% of consensus.

Engineering, construction and environment. Although 9MFY24 revenue for the segment came in -26.0%yoy lower at RM985.0m, the operating profit came in +65.0%yoy higher at RM145.0m. Among the drivers of the stronger bottom line was the recognition of cost savings upon finalisation of accounts of certain projects coupled with better margins. As for ongoing projects, the largest contributors during the quarter were the LRT3 and the Muara Sungai Pahang Phase 3 flood mitigation project as well as the recognition of revenue from historical project accounts closing.

Behind replenishment target. MRCB currently has an unbilled order book of RM14.16b, excluding the long-term Bukit Jalil Sentral TOD project. It has so far, still only secured RM250m of new jobs in FY24, way behind its target of RM5.0b. This will likely be made up of the projects it is currently negotiating, namely the five additional LRT3 stations, the redevelopment of the Shah Alam stadium and the redevelopment of the KL Sentral station. The group's active tender currently stands at RM3.0b, comprising the Penang International Airport expansion, a water treatment plant in Kelantan, a 15km stretch of the Central Spine Road in Kelantan, three large scale solar plants and upgrading works at Tawau Airport.

Property development and investment. The 9MFY24 segment's revenue dipped -49.0%yoy to RM234.5m and recorded an operating loss of -RM16.8m, a decrease of -147%yoy. This was due to the completion of two large projects in 2023 and the Group's new projects still yet to recognise any revenue. Management guided that there were some 80 units pending closure, which should be recognised in 4QFY24.

The segment also has RM630.5m of unbilled property sales from ongoing projects.

Earnings estimates. We adjust our FY24 earnings estimates by +9.0% to account for the stronger than expected performance, mainly driven by the strong earnings in 2QFY24. FY25/26 earnings thereafter are forecasted to have a 5% straight-line growth rate. While management guided for a slower 3QFY24, it expected 4QFY24 to come in stronger sequentially.

Target price. We maintain our TP at RM0.67 as we peg a forward P/B ratio of 0.65x to the group's estimated FY25F BVPS of RM1.04.

Maintain BUY. We expect MRCB's performance to be driven by its construction segment, which accounted for 77% of 3QFY24 revenue. As the LRT3 project winds down, the ongoing progress of its Muara Sungai Pahang and Sungai Langat Phase 2 flood mitigation projects to contribute to the group's revenue and earnings. Future construction growth drivers include the redevelopment projects for the Shah Alam Stadium and KL Sentral station and the expected improvement in infrastructure job flows. All factors considered and with our TP remaining unchanged at RM0.67, we maintain our recommendation of BUY.

Source: MIDF Research - 28 Nov 2024