MRCB affected by fluctuating operating rates

Currently, the firm has only resume 20% to 30% of its normal operating rate amid extended lockdown


MALAYSIAN Resources Corp Bhd’s (MRCB) upcoming quarterly results are expected to be challenging with operating rates fluctuating between 0% and 30% over the past two months.

Hong Leong Investment Bank Bhd (HLIB Research) analyst Edwin Woo said this was predicated by various impositions of the ongoing Phase 1 restrictions and Enhanced Movement Control Order (EMCO).

“Back in June, MRCB was able to get its infrastructure jobs (31% of orderbook) online during Phase 1, while on the property side only TRIA 9 Seputeh was permitted to work (24% of unbilled sales), all of which were halted by the two weeks EMCO in July,” Woo wrote in a research report last Friday.

At present, MRCB has gotten back to 20% to 30% of its normal operating rate.

He said further normalisation would require a transition towards Phase 2 as building jobs face approval challenges in Phase 1 with marginal orderbook contribution outside Klang Valley.

The analyst also foresees a slower ramp-up coming out of restrictions this year due to sticky supply chain issues.

“We foresee lingering supply chain issues moving forward with labour to remain a sticky issue considering the high number of cases and slow vaccination rates at source countries.

“Unless mitigating measures are implemented, operational ramp-up is likely weaker this year,” Woo said.

On the materials side, he said quarry, steel and cement operations in Selangor would only meaningfully resume in Phase 2 while inventories are already running low due to 0% production for two months.

On the brighter side, he noted that MRCB has submitted a proposal for Mass Rapid Transit 3 (MRT3), which is likely to be a deferred payment structure rather than participation in property development components.

“Assuming that net gearing increases to a manageable 0.6 times, MRCB could raise a sizable RM1.6 billion to facilitate the execution of deferred payment contracts.

“Until further MRT3 developments unfold in 2022, barring political fluidity, MRCB will have to contend with executing its existing orderbook of circa RM17 billion (excluding Light Rail Transit 3 and

equity accounted), translating to a sizable circa 32 times cover on the financial year 2020 (FY20) construction revenue, which is significantly comprised of long-term projects,” Woo said.

As for the construction tender landscape, he noted that MRCB has not encountered any sizable tender worth participating in this year.

On the property front, the analyst believes that management would have to delay some of its planned launches to 2022.

The company’s management had earlier aimed to launch gross development value (GDV) of RM1 billion projects comprising developments at Kwasa Sentral, PJ Sentral and KL Sentral.

Unbilled sales amount to RM1 billion, representing 1.6 times cover MRCB’s FY20 property revenue.

Woo noted that MRCB’s sales for its first quarter of FY21 came in at RM52 million, on pace to match its FY20 figures.

To match last year’s performance, he said domestic sales would have to come in at RM136 million versus RM165 million from last year, which remains achievable.

HLIB Research cut MRCB’s FY21/22/23 forecasts by 10.2%/3.4%/2.1%, respectively.

The investment bank maintained its ‘Hold’ call on MRCB with a slightly lower sum-of-the-partsdriven target price (TP) of 41 sen post-earnings adjustment.

Its TP implies a FY21-23 price-toearnings multiple of 86.1 times/37.3 times/30.3 times, respectively.

“Despite poor share price performance of late, we believe political fluidity coupled with limited upside catalysts could pose a continued drag on near term performance while its low price-to-book trading multiple of 0.34 times might cushion further downside,” Woo said.

He said key upside catalysts include MRT3 rollout, while downside risks are extended Phase 1 and political uncertainties.

MRCB shares ended unchanged at 34 sen last Friday to give a market value of RM1.52 billion.