Investment Highlights

• We downgrade MRCB to HOLD from BUY after the recent run-up in the share price, capping further upside. We revised our fair value to RM0.83 from RM0.84 (based on SOP valuation, Exhibit 2). We cut our FY19–FY20 earnings by 11.5% and 10.7% respectively to reflect the timing in revenue recognition in the property development & investment division; and introduce our FY21 net profit forecast at RM163.3mil.

• MRCB’s FY18 net profit of RM99.8mil (-37.1% YoY) is within our forecast but above consensus, constituting 104% and 114% of our and consensus estimates respectively. The fall in net profit was mainly due to: (i) the absence of RM1.1bil in revenue from the redevelopment of the KL Sports City in Bukit Jalil; (ii) the timing in income recognition of the LRT3; (iii) the discontinuation of toll collection revenue from the EDL; and (iv) property development projects that are still in the early phase of construction.

• The property development & investment division contributed 55.7% and 58.5% to the group’s FY18 revenue and EBIT respectively. MRCB registered new sales of RM496.6mil while unbilled sales of RM1.56bil shall provide greater earnings visibility the medium term.

• MRCB is stepping up its efforts to market the 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 currently has open tenders valued at RM2,9bil while its remaining order book now stands at RM21.5bil, indicating a stable income over the next 2–3 years.

• MRCB’s net gearing has been reduced to 20% from 50% YoY following the compensation of RM1,325.8mil received from the EDL termination.

• Going forward, management will remain 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 be able to generate positive cash flow for the group, hence brightening its earnings visibility.

Source: AmInvest Research - 27 Feb 2019