This article first appeared in The Edge Financial Daily, on September 30, 2015.

Malaysian Resources Corp Bhd
(Sept 29, RM1.18)
Maintain buy with a higher target price (TP) of RM1.50: Upcoming news on Malaysian Resources Corp Bhd’s (MRCB) land banking and construction job flows will likely excite the market. While MRCB’s earnings track record has been rather volatile, we believe this will change. 

Earnings quality should start to improve from next year, as many old low-margin construction jobs will be completed in 2015, and new and profitable ones will start contributing. 

It may have a stronger recurring earnings base on Light Rail Transit 3 (LRT3) project delivery partner (PDP) fees and higher dividend income from its 31%-owned MRCB-Quill Real Estate Investment Trust as more assets are sold. 

The management will also emphasise improving operating efficiencies next year as more contracts and land bank are secured.

We believe its contract flow will continue into the fourth quarter, as we understand that MRCB is one of the front runners for several construction jobs. 

Year to date, the company has won RM643 million worth of jobs versus our full-year target of RM1 billion. It is one of the few developers with strategic land parcels. Investors should expect a positive news flow on this front over the next few months.

We raise our financial year 2016 (FY16) and FY17 earnings forecasts by 22% and 40% to reflect the PDP fee contribution. Key earnings risks include delays in the LRT3 project and rising input costs.

We maintain “buy” on MRCB. Our TP is raised to RM1.50 (from RM1) based on a lower 35% discount to revalued net asset valuation (from 50%), as we expect better earnings visibility, while a positive news flow could drive MRCB’s share price in the near term. — RHB Research, Sept 29