KUALA LUMPUR: CIMB Equities Research has upgraded Malaysian Resources Corp
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Bhd (MRCB) to Add with a higher target price of RM1.19 on news that it has teamed up with Gamuda to bid for the project delivery partner (PDP) role of the Kuala Lumpur-Singapore High-Speed Rail’s (HSR) infrastructure construction on the Malaysian side.
“We believe this news could lift sentiment on the stock (down 7.4% YTD), as its infra outlook for rail contracts in 2018F could surprise on the upside.
“We upgrade our call to Add from Hold. In view of the likely positive construction newsflow in the months ahead, we narrow the discount on its RNAV from 20% to 10%, lifting our target price by 13% to RM1.19.
“We expect more details on the HSR PDP tenders in the next two to three months. Potential PDP award is likely by mid-2018F. Key downside risk our call is weak job wins,” it said.
News reports said the two groups would jointly bid under an unincorporated joint venture (JV), where
CIMB Research said MRCB qualifies as a PDP contender given that the group is currently the PDP for the RM9bn LRT 3 (Bandar Utama-Klang) which has largely completed its civil works awards.
Moreover, partnering with Gamuda for the HSR PDP is an added advantage given Gamuda PDP credentials for MRT 1 and 2.
The winning PDP will be responsible for developing the detailed design for the HSR's infrastructure works, which includes the station and the alignment structures (i.e. bridges, tunnels and embankments).
The total estimated value of the KL-Singapore HSR ranges from RM50bil to RM60bil.
Based on CIMB Research’s back-of-the-envelope calculation, and going by the 50%-60% PDP portion for MRT 1 and 2, the PDP scope for HSR could be worth a minimum of RM25bil-RM40bil.
“For MRCB, if the Gamuda-MRCB JV succeeds in securing the PDP portion of the HSR contract, we roughly calculate that the potential earnings contribution p.a. based on RM25bil to RM40bil PDP scope (benchmarked to MRT’s PDP proportion) and a 6% PDP fees (seven-year construction period) would be RM107mil to RM171mil (based on MRCB’s 50% JV share).
“This is 1.6 times more than MRCB’s existing RM68mil per annum PDP earnings share for the RM9bil LRT 3 contract undertaken by the MRCB-George Kent JV (50:50).
“YTD, MRCB has secured RM498m worth of new contracts, which includes a RM369mil package from Dash highway. This raises the group’s external outstanding order book to RM5.3bn.
“During MRCB's results briefing, management highlighted that with the current value of jobs in tender of RM2.9bil, it will focus on securing more civil engineering and long-term fee-based contracts. It did not disclose potential new job opportunities,” said CIMB Research.
Read more at https://www.thestar.com.my/business/business-news/2017/11/29/mrcb-dark-horse-of-hsr-project/#Cy4YqWrvCyJbdLjz.99
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