PETALING JAYA: Hong Leong Investment Bank (HLIB) has upgraded construction and property group Malaysian Resources Corporation Bhd (MRCB) to a “buy” from its previous “hold” call with a target price (TP) of 55 sen from 34 sen previously.

The upgrade is on account of better project pipeline, stronger news flow potential, value unlocking initiatives and movement in its long idle Bukit Jalil development project, the research firm said.

HLIB added the stock is trading at a still undemanding price-to-book (P/B) multiple of 0.45 times, and that its TP implies a FY2024F/2025F price-to-earnings ratio (P/E) multiple of 36 times/29.4 times.

In its research note today, HLIB said MRCB’s first half year (H1 FY2023) core profit after tax and minority interest (Patami) of RM19.3 million, an increase by 28.3% driven by lower effective tax rates, was within their consensus estimates.

The group’s net profit fell 22.93% to RM10.87 million for the second quarter ended June 30 (Q2 FY2023) from RM14.1 million a year earlier while revenue dropped 14.43% to RM599.35 million from RM700.39 million.

The decline was on the back of marginal contribution from its property division.

“Weakness came on the back of completion of Sentral Suites in March 2023 and TRIA 9 Seputeh in May 2023 resulting in reduction in progressive billing contribution,” said analyst Edwin Woo, adding the remaining quarters will likely rely on the sales of inventories valued at RM587.1 million.

HLIB added property contributions should kick into higher gear sequentially as the group’s project pipeline looks better anchored by directly negotiated projects.

“Its long idle Bukit Jalil contract could also start moving next year,” Woo said, adding that property launches of RM4 billion are slated for FY2024.

The Bukit Jalil contract is a self-generated contract which could cost RM400-500 million, and is part of Bukit Jalil Sentral, a mixed development project measuring 76.14 acres with a potential gross domestic value (GDV) of RM21 billion.

Meanwhile, property launches for the remainder of FY2023 includes Residensi Tujuh in Kwasa Damansara carrying an estimated GDV of RM329 million, and the 51-storey VISTA residential development in Surfer’s Paradise, Gold Coast, Australia with a GDV of RM1.2 billion.

“As at the end July, property sales stood at RM313.2 million tracking along its RM500 million target,” Woo said. He added property earnings are guided to be stronger sequentially while MRCB’s new launch cycle next year could lift its segment contribution.

The two directly negotiated jobs in the pipeline such as Shah Alam Stadium redevelopment and KL Sentral redevelopment are both valued above RM1 billion each.

“The former is expected to be finalised once suitable land is identified while for the latter, MRCB will be entering negotiations which could stretch a maximum two years,” he said.

HLIB said according to its management, the stadium development and land consideration transfer will be done in phases, preventing balance sheet stress.

MRCB’s share price closed 4.5 sen or 10% higher at 50 sen with a market capitalisation of RM2.21 billion.