Investment Highlights

• We maintain HOLD on MRCB with a higher fair value of RM0.47 (vs. RM0.45 previously) as we roll over our valuation to FY21 (Exhibit 2). No changes to our FY20–FY22 earnings forecasts.

• MRCB registered a 1HFY20 net loss of RM204mil. Excluding the exceptional items such as impairment of contract assets, trade and other receivables amounting RM202.5mil, MRCB posted a RM1.5mil core net loss vs. a RM15mil YoY net profit. It decided on the impairments as it believes there is a high possibility the receivables from some of the completed construction projects will not be recovered as a result of the pandemic. Revenue rose 24.8% YoY mainly due to higher contribution from the property development & investment division whereby its revenue recognition came in earlier than expected.

• The property development & investment division’s 1HFY20 revenue surged by 115% YoY to RM336.4mil contributed by: (i) the 1060 Carnegie project in Melbourne which has been completed in December 2019; (ii) Suites in KL Sentral; and (iii) TRIA 9 Seputeh. However, the division’s operating profit fell by 43% to RM27mil mainly due to cost incurred during the MCO period while construction completely halted. On a positive note, MRCB bagged new sales of RM86mil as of 1HFY20 while unbilled sales of RM1.3bil shall provide better earnings visibility in the medium term.

• The engineering, construction & environment division’s 1HFY20 revenue fell by 15% YoY to RM231mil but EBIT was 15% higher at RM2mil. The stronger EBIT was mainly contributed by a higher share of JV earnings. MRCB George Kent Sdn Bhd’s LRT3 project contributed a minimal PAT of RM1.4mil on 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 33% completed, should see a stronger recognition in 2H2020, albeit at a slower pace of work due to the implementation of stricter standard operating procedures to prevent the spread of Covid-19. Management indicated it should achieve 40% by the end of FY20.

• Despite a weak 1HFY20, we make no changes to our FY20– FY22 net earnings forecasts as we expect stronger recognitions in 2HFY20 and beyond. 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 - 28 Aug 2020