KUCHING: Malaysian Resources Corporation Bhd ‘s (MRCB) contract win for the construction of JLand Tower in Johor Baru has been deemed by analysts to be within the new jobs replenishment assumption for financial year 2014 (FY14).
In an announcement on Bursa Malaysia, MRCB had highlighted that it had accepted the Letter of Acceptance of Tender from Johor Land Bhd for the construction of a 30-storey Jland Tower in Johor Baru at a tender sum of RM197.4 million.
“The construction period for the works is 24 months and (is) to be completed by November 2016,” MRCB said, adding that the project is expected to contribute positively to the future earnings of the group.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) is not surprised with the job win as it has already been guided by the management and it falls within the research arm’s new jobs replenishment assumption for FY14 of RM500 million.
It noted that earnings contribution to the group from this contract for this year is relatively small.
“Assuming a pretax margin of seven per cent, we estimate the contract to contribute RM1 million and RM6.6 million to FY14 and FY15’s earnings respectively.
“Although MRCB’s contract flow has been rather dry this year, we expect the shortfall to be offset by additional earnings from the completion of its key acquisitions,” MIDF Research said.
To-date, MRCB has replenished RM197.4 million worth of construction jobs this year, accounting for 40 per cent of the research arm’s new jobs assumption in FY14.
With this new project, MIDF Research pointed out that MRCB’s outstanding order book will rise by 18.2 per cent to RM1.3 billion from RM1.1 billion.
In terms of the forecast for MRCB, MIDF Research maintained its earnings numbers as the research arm has already imputed the job contract win into its estimates.
Generally, the research arm finds that MRCB is now on a stronger footing after completing several key acquisitions, namely 51 per cent equity interest in Penang Sentral Sdn Bhd, 40 per cent in Excellent Bonanza Sdn Bhd, and further 30 per cent stake in PJ Sentral.
In addition, MIDF Research noted that the group was awarded RM8 billion project MX-1 recently on top of its current estimated mixed property development projects gross development value (GDV) of more than RM20 billion over the next 10 years.
“These are potential drivers which will contribute to MRCB’s stronger earnings growth ahead,” the research arm said.
It added that further monetisation of MRCB’s investment assets in KL Sentral via real estate investment trusts (REITs) will improve its balance sheet by reducing its gearing as well as enable it to fund some of its robust projects on hand internally.
Premised on the above, MIDF Research thus reaffirmed its ‘buy’ recommendation with an unchanged target price of RM2.59 per share based on FY15 sum-of-parts valuation. “With the recent pullback in share price, we believe this is a good time to accumulate the stock,” it concluded.