24 February 2015 4QFY14 Results Review Malaysia Resources Corporation Bhd Well positioned to regain its upward earnings trajectory Reaffirm BUY Adjusted Target Price (TP): RM2.24 (previously RM2.59) INVESTMENT HIGHLIGHTS FY14 earnings came in below ours and market consensus estimates. RETURN STATS Price (23 February 2015) RM1.40 However, MRCB has achieved a remarkable turnaround for FY14 with a normalized PATAMI of RM41.6m. We continue to be upbeat on the Group s earnings prospects and reaffirm our BUY recommendation with an adjusted TP of RM2.24. Target Price Expected Share Price Return RM2.24 +60.0% Expected Dividend Yield +2.0% Expected Total Return +62.0% Improved normalized earnings in FY14. MRCB s reported FY14 earnings which were below ours and consensus expectations due to losses from a joint venture (JV) operation. It was mainly due to additional finance and start-up costs incurred during the quarter. However, overall for FY14 the Group s full year normalized PATAMI staged a recovery from losses in FY13 as a result of a kitchen sinking exercise. This was despite of a weaker 4QFY14 from the losses of its JV operation as aforementioned. Stripping out the gains from the divestment of its stake in DUKE of RM94.9m, its FY14 bottom line was still strong at RM41.6m (>+100%yoy). The Group also proposed a first and final dividend of 2.5 sen for FY14. Strong gains from key segments. The encouraging FY14 numbers were driven mainly by solid revenue particularly from its construction billings on PJ Sentral (comprising MyIPO tower and MBSB tower), Q Sentral Office (Lot B), Sentral Residences (Lot D) and Parcel C of 9 Seputeh. The Engineering and Construction segment was also seen gaining traction, thanks to both Ampang Line and Kelana Jaya LRT extension line works progress. As most of its aforementioned projects are moving out from infant stage, we see its earnings to grow stronger in the next two years. STOCK INFO KLCI 1,809.39 Bursa / Bloomberg Board / Sector Syariah Compliant 1651 / MRC MK Main / Property Yes Issued shares (mil) 1,786.6 Par Value (RM) 1.00 Market cap. (RM m) 2,501.2 Price over NTA 1.43x 52-wk price Range RM1.05 RM1.79 Beta (against KLCI) 1.21x 3-mth Avg Daily Vol 2.03m 3-mth Avg Daily Value RM2.61m Well positioned to regain its upward earnings trajectory. We believe the strength of the Group is attributed to its strategic property development in the transportation hub and prime locations, which is an advantage compared to peers. Furthermore, the Group has already demonstrated an exceptional earnings recovery in FY14. Its strong recovery in earnings in FY14 was an evidence of its capability to deliver earnings growth in the long-term despite of a slowdown in the property market. Apart from its on-going property projects, we view major catalysts that has yet to contribute positively to its earnings as follows: (1) its 70% stake in RM8b project MX-1, (2) imminent implementation of RM8b Phase 2 of P.J Sentral, and (3) pre-qualification for RM800m incinerator concession project in Kepong. Major Shareholders EPF 35.93% Gapurna Sdn Bhd 16.70% Lembaga Tabung Haji 10.08% KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES
INVESTMENT STATISTICS FYE Dec FY12 FY13 FY14 FY15F FY16F Revenue (RM m) 1,243.5 940.9 1,514.8 1,848.8 2,224.1 EBIT (RM'm) 197.2 9.0 321.2 361.2 389.7 Pre-tax profit (RM m) 125.1-110.4 125.7 198.6 229.1 Normalised PATAMI (RM m) 60.1-109.1 41.6 90.6 115.6 FD EPS (sen) 4.3-7.4 2.4 4.8 6.1 EPS Growth (%) -35.7-270.0-133.0 95.9 27.6 PER(x) 35.7 N.A. 50.2 29.4 23.0 Dividend (sen) 2.0 1.0 2.5 3.0 3.6 Dividend yield (%) 1.3 0.8 2.0 2.0 2.6 Source: Company, forecasts by MIDFR In addition, we expect the Group s net gearing level to be pared down to 1.28x from 1.52x in FY14 upon completion of disposal of Platinum Sentral into REIT. VALUATION AND RECOMMENDATION Reaffirm BUY. Given that we have re-visited our FY15 earnings forecasts and introduce FY16 numbers, we are expecting the Group s FY15/16 average earnings to be higher by >100% to RM103m from RM41.6m in FY14. We have adjusted our target price to RM2.24 per share based on Sum-of-Parts (SOP) valuation. We believe the current share price is trading unjustifiably below its asset value and thus it is undervalued. Hence, we reaffirm our BUY recommendation on MRCB. DAILY PRICE CHART Hafiz Hassan mohd.hafiz@midf.com.my 03-2772 1668 Source: Bloomberg, MIDFR 2
4QFY14 RESULTS REVIEW Quarterly Results Cumulative FYE Dec (RM'm) 4Q14 YoY QoQ 12M14 YoY Revenue 487.2 32.0% -2.0% 1,514.8 61.0% Operating expenses -425.7 20.1% -3.8% -1,356.1 27.9% Other operating income 10.3-75.0% -68.8% 257.4 69.6% Profit from operations 71.7 28.9% -18.3% 416.1 >100% Finance Cost -45.5 26.3% 13.0% -171.2 15.7% Associates 4.3 >100% 96.7% 12.3 103.9% JV -14.0 >100% 66.0% -36.6 >100% PBT 16.6-13.9% -59.7% 220.6 >100% Taxation -18.0 96.6% 93.3% -53.3 326.9% PATAMI -13.5 >-100% >-100% 136.5 >100% EPS (sen) -0.8 >100% >-100% 8.0 >-100% 4Q14 +/- ppts +/- ppts 12M14 +/- ppts EBIT margin 14.7% -0.4-2.9 27.5% 24.0 PBT margin 3.4% -1.8-4.9 14.6% 26.3 PATAMI margin -2.8% -3.1-8.0 9.0% 21.1 Effective tax rate 108.1% 60.8 85.6 24.1% 35.5 Segmental Breakdown Revenue 4Q14 YoY QoQ 12M14 YoY Engineering and construction 197.5 51.0% 53.4% 510.7 35.8% Property development 239.4 37.1% -26.4% 876.4 90.5% Infrastructure and environmental 28.8 43.1% 43.1% 49.0 29.4% Building services 20.6 >100% -9.8% 77.5 16.1% Investment holdings & others 0.8 >100% >100% 1.1 >100% TOTAL 487.2 32.0% -2.0% 1,514.8 61.0% PBT 4Q14 YoY QoQ 12M14 YoY Engineering and construction -1.0 >-100% -103.6% 42.6 >100% Property development 45.8 >100% -5.8% 160.3 >100% Infrastructure and environmental 19.5 >100% >100% 20.3 >100% Building services 2.9 >1008% -27.5% 9.7 29.4% Investment holdings & others -4.9 >-100% -60.8% 82.0 >100% Interim payment from government 0.0 N.A. N.A. 62.9 N.A. Net finance -36.1 >100% 14.4% -132.8 6.7% Share of results of JV & associates -9.6 N.A. N.A. -24.3 N.A. TOTAL 16.6 48.9% -59.7% 220.6 >100% PBT margin 4Q14 +/- ppts +/- ppts 12M14 +/- ppts Engineering and construction -0.5% 16.3-23.0 8.3% 29.4 Property development 19.1% 7.9 4.2 18.3% 16.1 Infrastructure and environmental 67.8% 81.7 66.0 41.5% 60.6 Building services 14.2% 6.5-3.5 12.5% 1.3 Source: Company data, MIDFR 3
SOP VALUATION Segments Basis Indicative Value (RM'm) Per Share (RM) (a) Property Developments KL Sentral Development 442.6 0.23 Project MX-1 649.6 0.34 PJ Sentral Garden City (Phase 1) 191.6 0.10 9 Seputeh, Old Klang 242.1 0.13 Penang Sentral 221.0 0.12 Kia Peng, The Grid 46.3 0.02 Kajang Utama, 3 Residences 28.0 0.01 Semarak City, Setapak 222.6 0.12 Lot 2C4: Putrajaya, Office Tower 42.3 0.02 DCF of future profit Lot 349: Serviced Apartments 99.5 0.05 Suria Subang Jaya 45.4 0.02 Selborn 2 - Shah Alam 14.6 0.01 Batu Feringghi land, Penang 36.8 0.02 Salak South 128.3 0.07 Seri Iskandar (Phase 2) 25.7 0.01 Seri Iskandar (Phase 3) 21.8 0.01 Bukit Rahman Putra, Sungai Buloh 58.6 0.03 Burwood (Australia) 22.7 0.01 Sub-total (a) 2,539.4 1.34 (b) Property Investments Net Operating Income + Book value 1,567.4 0.82 (c) Engineering & Construction FY15/16 average earnings PER 14x 520.5 0.27 (d) Toll Concessions Eastern Dispersal Link, JB (EDL) DCF (WACC: 8%) 1,399.1 0.74 (e) Building & Car Park Services FY15/16 average earnings PER 6x 38.9 0.02 Total SOP 6,065.2 3.19 Less: Borrowings -3,211.6-1.69 Add: Cash 660.7 0.35 Gain on Platinum Sentral 240.0 0.13 Quill Capita Trust: Combined REIT assets valued at RM1.57b 502.4 0.26 Estimated SOP 2.24 Enlarged share cap 1,900.4 Source: Forecasts by MIDFR 4
MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Total return is expected, by -15% or more, over the next 12 months. TRADING SELL Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 5