Investment Highlights

• We maintain HOLD on MRCB with a lower fair value of RM0.41 (from RM0.47) based on SOP valuation (Exhibit 2). We cut our FY21–22 net earnings by 41% and 43% respectively to reflect the timing of revenue recognition in: (i) property development; and (ii) engineering, construction & environment divisions. We introduce our FY23 net profit forecast at RM46.1mil.

• MRCB registered an FY20 net loss of RM176.1mil. Excluding the exceptional items of impairment of contract assets, trade and other receivables totalling RM175.3mil, MRCB posted an FY20 core net loss of RM0.8mil vs. a net profit of RM23.7mil YoY. Revenue fell by 9.1% YoY mainly due to lower recognition in the engineering, construction & environment division as a result of the various movement control orders (MCO) and Covid-19 pandemic while FY20 RM0.8mil core net loss was due to higher operating costs.

• The property development & investment division’s FY20 revenue climbed 12% YoY to RM489.4mil but core EBIT was 34% lower at RM51mil. The higher revenue was mainly contributed by 1060 Carnegie in Melbourne, Sentral Suites in KL Sentral, 9 Seputeh in Jalan Klang Lama, and the office towers in PJ Sentral Garden City. The MyIPO Office Tower in PJ Sentral Garden City was completed and handed over on 13 November 2020. The lower core EBIT was due to minimal construction progress during the movement restriction orders and lockdown in the Victoria state, Australia in 3Q FY2020. MRCB bagged new sales of RM187.3mil in FY20 while unbilled sales of RM1.1bil provide better earnings visibility in the medium term.

• The engineering, construction & environment division reported its FY20 revenue and core operating loss of RM515mil and RM4.1mil respectively. The division has open tenders worth RM2.7bil while its remaining order book stands at RM20.45bil.

• MRCB George Kent Sdn Bhd’s LRT3 project contributed a PAT of RM8.1mil for FY20 as compared to RM0.6mil YoY. The LRT3 project, which is currently 46% 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 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 RM1.1bil and a robust outstanding order book of RM20.45bil. As there is little upside potential, we maintain our HOLD recommendation on MRCB.

Source: AmInvest Research - 26 Feb 2021