Malaysian Resources Corporation Berhad’s revenue in 1QFY24 dipped -35.8%yoy to RM476.2m while its core earnings declined -64.6%yoy to RM3.0m. This came in below MIDF’s and consensus expectations, making up only 4.3% and 5.3% respectively of full year estimates. The house said the weaker performance came from the weaker contribution of its property development division. In a call yesterday, management guided for a slower 1HFY24 followed by a ramp up in 2HFY24.
Engineering, construction, and environment. Although revenue came in -21.4%yoy lower at RM360.3m, the operating profit came in 2.5x higher at RM17.8m. Projects that contributed towards the quarter were the LRT3 and Muara Sungai Pahang Phase 3 flood mitigation projects.
While the LRT3 delivered lower revenue as it is now at the tail end of the project, MRCB was able to recognise higher profit on the back of a recalibration of costs. Management expects the construction division to be the key driver for the group over the medium term.
RM5b job replenishment target intact. MRCB currently has an unbilled order book of RM15.3bn and targets to secure RM5.0b of new jobs. Upcoming jobs that have yet to be finalised are the five additional stations for the LRT3 and other works that may come up larger than RM1.5b, redevelopment of the Shah Alam stadium and redevelopment of KL Sentral. Management is actively bidding for jobs, with a tender book of RM33.0b, which includes projects such as MRT3, Pan Borneo packages,
Penang International Airport expansion, among others.
Property development and investment. The segment’s revenue plunged -63.4%yoy to RM98.1m while its segmental profit was down – 66.3%yoy to RM11.2m. Management attributed the weaker performance due to the completion of Sentral Suites in Mar-23 and the completion of TRIA 9 Seputeh in May-23. The group has earmarked RM3.6b of property launches – about RM2.3b in Malaysia and RM1.3b in New Zealand.
MRCB’s aim this year is to enhance its cash flow by monetising its unsold completed units, which is now at RM347.5m. Management reiterated that FY24 would see similar asset sales, such as the disposal of Menara CelcomDigi and Plaza Alam
Sentral in FY23 as the group becomes more proactive in disposing noncore assets, or those that are perceived “too far down the road” in terms of contributing to the bottom line. MIDF views that this will allow the capital to be recycled into its upcoming projects, such as the redevelopment of the Shah Alam stadium and the redevelopment of KL Sentral, which will be built at no cost to the government and are to be funded by land swap. MRCB’s net gearing is at a healthy 19.9%.
Data centre prospects? MRCB said it is in active discussions with several companies on the development of a data centre.
Management has said it is considering a build and lease model.
Earnings estimates. The house slashes its FY24/FY25 earnings estimates by -16.3%/-16.0% to account for the slower than
expected performance. Target price revised to RM0.67 from RM0.63 previously.
MIDF expects MRCB’s performance in the near term to continue to be driven by its remaining progress for the systems and civil works of the LRT3, which has achieved physical completions of 94% and 90% respectively. The house believes MRCB should be able to benefit from the expected improvement in infrastructure job flows, as seen from its large active tender book.
All factors considered, MIDF said it maintains its NEUTRAL recommendation as it believes that the positives are
largely priced in for now. Rerating catalysts would come from faster and larger than expected contract awards and stronger
property sales
