Investment Highlights

• We maintain our HOLD call on MRCB with an unchanged FV of RM0.83 per share, based on SOP valuation (Exhibit 2). We revised our FY18 earnings upwards by 9% to reflect the timing in revenue recognition in the property development & investment division while leaving our FY19 and FY20 forecasts unchanged.

• MRCB’s 9MFY18 net profit of RM74.2mil (+17.2 YoY) is above our forecast but below consensus, constituting 83% and 68% of our and consensus full-year estimates. The increase in net profit was mainly due to lower net finance expenses (-81.4%). Meanwhile MRCB Quill Mall contributed PAT of RM13.8mil to the group.

• The property development & investment division’s EBIT declined by 20.6% YoY to RM88.9mil as new projects were still at the early phase of construction. Nonetheless, unbilled sales of RM1.62bil (QoQ: RM1.70bil) will be progressively recognized over FY18-FY21. MRCB will continue to focus its marketing efforts on its residential development projects, namely Sentral Suites, KL Sentral (GDV: RM1,529mil), 1060 Carnegie, Melbourne (GDV: RM305 million) and Kalista Park Homes, Bukit Rahman Putra (GDV: RM101mil), and the remaining unsold units in the Sentral Residences, Q Sentral and VIVO in 9 Seputeh.

• The engineering, construction & environment division’s EBIT came in at RM44.8mil (-3.7% YoY), contributed by the MRT2 V210 package and rehabilitation project at Sungai Pahang. The 50% JV venture, MRCB George Kent Sdn Bhd (MRCB-GK), the project delivery partner for the LRT3 project contributed RM20.7mil PAT to the group. MRCB’s remaining order book now stands at RM4.8bil, indicating stable income for the construction division over the next 2- 3 years. Its external order book is expected to increase further by RM17bil once the LRT3 contract is finalized and the Bukit Jalil corporate exercise is completed.

• MRCB’s net gearing remained high at 72% vs. 70% QoQ. However, the compensation of RM1,325.8mil received from the EDL termination; disposals of Ascott Sentral and Menara Celcom; and the Bukit Jalil corporate exercise shall reduce its net gearing to below 20%.

• The government’s decision to continue the LRT3 and compensate for the EDL has cleared the uncertainties in MRCB and thus provide better visibility for the future. We believe the outlook for MRCB remains stable premised on its strong property unbilled sales of RM1.62bil, a robust outstanding construction order book of RM4.8bil and outstanding LRT jobs of RM11.86bil.

Source: AmInvest Research - 23 Nov 2018