Investment Highlights

• We maintain our HOLD call on MRCB with a lower fair value of RM0.80 per share (from RM1.26), based on SOP valuation (Exhibit 3). We reduced our FY18 and FY19 earnings forecasts to RM88.9mil (-40.8%) and RM159.4mil (-19.9%) respectively; and introduced our FY20 earnings forecast at RM177.0mil.

• Transit-oriented development (TOD) will remain MRCB’s key focus with a landbank of 282 acres, bearing a total GDV of approximately RM31bil, providing the capacity to plan future property development projects catered to market needs and demands over the long term.

• Presently, the company has several ongoing TOD projects namely PJ Sentral Garden City (GDV RM2.6bil), Penang Sentral, (GDV: RM2.9bil) Kwasa Sentral, Kota Damansara (GDV: RM10.5bil) and Cyberjaya City Centre (GDV: RM5.4bil).

• As for the construction segment, MRCB’s remaining order book now stands at RM4.8bil, indicating stable income for the construction division over the next 2-3 years. On top of that, its construction order book will be increased by RM11bil from the Bukit Jalil Sentral development (pending completion of land sale) and an additional RM8bil from the LRT3 project.

• In its most recent announcement, MRCB George Kent SB (MRCB-GK) said that the government has agreed to continue the LRT3 project at a total cost of RM16.6bil, including land acquisition costs, interests during construction and other costs. This is just slightly more than half of the earlier cost of RM31.4bil stated in July 2018. The JV partners are currently renegotiating the package deals with the relevant contractors and expect the outcome by the end of Oct 2018.

• The Eastern Dispersal Link (EDL) was handed over to the federal government after its concession period ended on 31 Dec 2017. MRCB has resumed negotiations with the new administration on compensation, and this should be concluded by year-end. To date, the EDL has an equity value of RM72mil, shareholder advances at RM200mil and total debt of RM1bil.

• We believe the outlook for MRCB shall remain stable premised on its strong property unbilled sales of RM1.6bil and a robust outstanding order book of RM4.8bil. Going forward, management remains focused in its core businesses while exploring more opportunities in unlocking its land value through land sales. Moreover, with the resumption of LRT3 works, although at a lower contract value, the project will still able to generate positive cash flow for the group, hence brightening its earnings visibility.

Source: AmInvest Research - 19 Oct 2018