KUALA LUMPUR: Malaysian Resources Corp Bhd (MRCB) earnings should pick-up in the second half (2H) of 2020 aided by a stronger fourth quarter (Q4), Hong Leong Investment Bank (HLIB) Research said.
The group's construction productivity levels are hovering around 80 per cent of pre-pandemic levels with standard operating procedures (SOPs) compliance measures disrupting full normalisation, the research house noted.
During a virtual meeting with MRCB recently, HLIB said the management has indicated that its tender-book remains largely unchanged at RM2.9 billion, of which 80 per cent are building projects and 20 per cent of projects are infrastructure.
"Included this in, we believe there are dated tenders which will likely require tender re-submission.
"Despite a lacklustre tender-book, MRCB does boast an impressive orderbook of RM16.9 billion, mostly long term jobs. This should assuage concerns on longer term construction earnings amidst a slow tender environment," HLIB said in a note today.
Besides that, completion rate for Light Rail Transit Line 3 (LRT3) remains on track for 40 per cent by year end.
"The joint venture is still undergoing a re-measurement process which we think will likely conclude early next year. Stronger earnings recognition is anticipated once the process is finalised," it said.
HLIB said for property division, earnings will be buoyed by continuing handover of 1060 Carnegie in the second half (2H) 2020.
MRCB's domestic projects are still on track with construction progress at Sentral Suites to achieve 45 per cent by year end and TRIA, 9 Seputeh targeting 40 per cent by year end.
Going forward, HLIB noted that MRCB's impairments are unlikely having undertaken a thorough impairment assessment previously.
MRCB recognised a RM197 million construction related impairment in the second quarter (Q2) of 2020.
"Nonetheless, we understand MRCB's remaining exposure mainly comprises of quasi-government parties which carries lower credit risks," it said.
HLIB has cut MRCB's financial year 2020, 2021 and 2022 earnings downward by -9.7 per cent, -5.7 per cent and -0.5 per cent, respectively, after adjusting downwards assumptions for financial year 2020 tender-book replenishment, construction margins and slower handover at Carnegie.
HLIB maintained its "Hold" call on MRCB, with a lower target price of 48 sen from RM50 sen previously.