Investment Highlights

• We maintain our HOLD recommendation on MRCB with a higher fair value of RM0.45 (vs. RM0.38 previously) based on SOP valuation (Exhibit 2). We raise our FY20–FY21 earnings forecasts by 64% and 58% respectively to reflect the timing of recognition while making no changes to FY22 numbers.

• MRCB’s 1QFY20 net profit of RM14.8mil (+271.9% YoY) came in above expectations at 53% and 31% of our and street estimates. Revenue surged 81.9% YoY mainly due to higher contribution from the property development & investment division whereby its revenue recognition came in earlier than expected. However, management guided for a softer 2QFY20 due to the impact of the movement control order (MCO) and Covid-19 pandemic.

• The property development & investment division’s 1QFY20 revenue and EBIT increased by 177.8% and 584.7% YoY to RM566.7mil and RM76.8mil respectively contributed by: (i) the 1060 Carnegie project in Melbourne which has been completed in December 2019 (1/3 recognised as of 1QFY20); (ii) Suites in KL Sentral; (iii) 9 Seputeh; office towers in PJ Sentral Garden City; and (iv) Sentral Residences and Kalista Park Homes in Bukit Rahman Putra. MRCB bagged new sales of RM36mil as of 1QFY20 while unbilled sales of RM1.3bil shall provide better earnings visibility in the medium term.

• The engineering, construction & environment division’s 1QFY20 revenue surged 31.7% YoY but EBIT fell by 24.8% for the same period. The drop in EBIT was mainly due to higher operating costs. MRCB George Kent Sdn Bhd’s LRT3 project contributed a minimal PAT of RM1.2mil due to a deferment of progress billings. The engineering, construction & environment division has open tenders worth RM2.5bil while its remaining order book stands at RM20.7bil.

• The LRT3 project, which is currently 29% completed, should see a stronger recognition in 2020, albeit at a slower pace of work due to the implementation of stricter standard operating procedures to prevent the spread of Covid-19.

• We raise our FY20–FY21 earnings forecasts by 64% and 58% respectively to reflect the timing of recognition while making no changes to FY22 numbers. We believe the long-term outlook for MRCB remains stable premised on its strong property unbilled sales of RM1.3bil and a robust outstanding order book of RM20.7bil. As there is little upside potential, we maintain our HOLD recommendation on MRCB.

Source: AmInvest Research - 29 Jun 2020