Investment Highlights

• We maintain HOLD on MRCB with an unchanged fair value of RM0.47. We cut our FY20 net earnings by 75% to reflect the timing of revenue recognition in: (i) property development; and (ii) engineering, construction & environment divisions while retaining FY21F–FY22F numbers.
• MRCB registered a 9MFY20 net loss of RM203mil. Excluding the exceptional items of impairment of contract assets, trade and other receivables totalling RM202.5mil made in 2QFY20, MRCB posted a 9MFY20 core net loss of RM0.5mil vs. a net profit of RM17.4mil YoY. Revenue rose 5% YoY on the back of higher contribution from the property development & investment division while 9MFY20 RM0.5mil core net loss was due to higher operating costs. MRCB made a RM0.9mil net profit in 3QFY20.
• The property development & investment division’s 9MFY20 revenue climbed 32% YoY to RM489.4mil but EBIT was 50% lower at RM34.3mil for the same period. Higher revenue was mainly contributed by the property development project in Melbourne, 1060 Carnegie, upon the progressive handover and financial settlement of purchased units following its completion in December 2019. Meanwhile, there have been some delays in settlements and a slowdown in sales as the Victoria state in Australia implemented much tougher movement restrictions starting 7 July 2020. On a positive note, MRCB bagged new sales of RM126mil as of 9MFY20 while unbilled sales of RM1.2bil provide better earnings visibility in the medium term.
• The engineering, construction & environment divisions reported its 9MFY20 revenue and core operating loss of RM363.2mil and RM1mil respectively. MRCB George Kent Sdn Bhd’s LRT3 project contributed a minimal PAT of RM1.6mil on a deferment of progress billings. The division has open tenders worth RM2.7bil while its remaining order book stands at RM20.5bil.
• The LRT3 project, which is currently 39% completed, should see a stronger profit recognition pick-up in 2021, albeit at a slower pace of work due to stricter standard operating procedures to curb the spread of Covid-19. Management indicated it should achieve 40% by the end of FY20.
• Management noted that the key priority for FY20 is to enhance cash flow by monetising its inventory of unsold completed stock and focusing on its projects in hand. We believe the longterm outlook for MRCB remains stable premised on its strong property unbilled sales of RM1.2bil and a robust outstanding order book of RM20.5bil. As there is little upside potential, we maintain our HOLD recommendation on MRCB.

Source: AmInvest Research - 24 Nov 2020