| Aid | 605389026 |
|---|---|
| Status | Published |
| Category | Report |
| Subcategory | Industrial Products |
| Coid | MRCB |
| Appoletid | 0 |
| Date Article | 2021-08-03 00:00:00 |
| Public | Yes |
| Title | MALAYSIAN RESOURCES CORPORATION BERHAD - 2021 |
| Content | Rating action MARC has affirmed its AA-IS rating on Malaysian Resources Corporation Berhad’s (MRCB) Islamic Medium-Term Notes Programme of up to RM5.0 billion (Sukuk Murabahah) with a stable outlook. As at end-May 2021, the programme has an outstanding sukuk of RM800 million. Rationale The affirmed rating reflects MRCB’s well-established market position as a property developer with a focus on transit-oriented developments (TOD) and the management’s longstanding experience in the property development and construction segments. The rating also incorporates the support extended by its key shareholder, the Employees Provident Fund Board (EPF), including in the form of equity participation with MRCB in developments which reduces funding risk. The rating is moderated by the group’s high working capital requirement and build-up in inventory level against the backdrop of weak property market sentiments. MRCB has ongoing projects — mainly in the Klang Valley — with a total gross development value (GDV) standing at RM2.8 billion as at end-March 2021, including the RM1.5 billion Sentral Suites development that achieved a healthy take-up rate of 84%. Its other projects including Tria 9 Seputeh and Alstonia recorded moderate take-up rates, contributing to an overall take-up rate of 63%. Given the challenging market conditions, the group is expected to remain cautious in undertaking new launches and will focus on improving unit sales of ongoing projects as well as reducing inventory level which had risen to RM450.9 million as at end-March 2021. MRCB has unbilled sales of RM1.0 billion that provide earnings visibility through 2023. For its construction segment, MRCB has an ongoing construction order book (external projects) of RM10.8 billion (excluding the Bukit Jalil Sentral project which has yet to commence) as at end-March 2021. This includes Light Rail Transit 3 (LRT3) (RM5.7 billion) and the Kwasa Utama Plot C8 development (includes construction of EPF Headquarters) (RM3.1 billion). The construction progress of various infrastructure projects such as Mass Rapid Transit 2 (MRT2) and LRT3 have picked up their pace following disruptions caused by the movement control order (MCO) in 2Q2020. Given that infrastructure construction works have been allowed to continue during the current MCO period, progress billings are less likely to be impacted. As at end-March 2021, the MRT2 package and LRT3 were 84% and 51% completed, on track to achieve completion by end-2021 and 2024. For full year 2020, MRCB recorded a 9.1% lower revenue of RM1.2 billion mainly due to the slower construction progress. This has offset the higher property development revenue, chiefly from the handover of units from its 1060 Carnegie project in Melbourne, Australia. During the year, the group recorded an impairment provision of RM177.8 million for completed construction projects in the hospitality sector that contributed to pre-tax losses of RM152.9 million. In 1Q2021, there was a turnaround to pre-tax profit of RM5.7 million. At end-March 2021, MRCB’s borrowings stood at RM1.8 billion with a moderate gross leverage position of 0.4x. The debt-to-equity (DE) ratio is projected to rise to about 0.5x in the medium term towards working capital requirement for its ongoing projects. Going forward, working capital could come under some pressure as inventory level could increase from the current RM450.9 million at end-March 2021 given some of its projects with low take-up rates are expected to be completed by 1H2022. The group has unutilised credit lines of about RM1.0 billion and unrestricted cash balances of RM235 million as at end-March 2021 that provide some financial flexibility. Rating outlook The stable outlook reflects our expectations that MRCB’s credit metrics will remain broadly in line with the current levels in the near term. Rating trajectory Upside scenario Any upward movement in the rating and/or outlook is unlikely in the near term. Any upgrade would depend on a substantial improvement in the leverage position and an improvement in the performance metrics, including a reduction in the inventory level and strong sales performance of ongoing developments as well as uninterrupted construction progress. Downside scenario The rating could come under pressure if leverage rises sharply from the projected level and/or there is a prolonged weakening in business performance amid the uncertainty surrounding the ongoing pandemic crisis. Key strengths • Strong key shareholder support • Established market position in transit-oriented developments • Strong earnings visibility from sizeable unbilled sales Key risks • Build-up in inventory level • Challenging market conditions |
| Counter Viewed | 778 |
| Price Freemembers | 500.00 |
| Price Paidmembers | 0.00 |
