Investment Highlights

• We maintain our BUY call on MRCB with an unchanged fair value of RM1.89, based on a 10% discount to its RNAV. We make no changes to our earnings forecasts

• MRCB’s 1QFY17 net profit grew 138.6% YoY to RM10.5mil, making up 9% of our full-year forecast and 7% of consensus. We deem this to be broadly in line, as we expect stronger performance for the rest of the year from both its property and construction divisions. No dividend was declared, as expected.

• The positive performance was mainly due to lower finance costs, higher interest income and a stronger performance from its property development division.

• The property development division registered a 59% YoY growth in revenue to RM242.5mil in 1QFY17, generated mainly by its Sentral Residences in KL Sentral and Easton Burwood in Melbourne, as well as 9 Seputeh in Jalan Klang Lama, PJ Sentral Garden City, Menara MRCB in Putrajaya and SIDEC residential project in Perak. However, operating profit for the division dropped 26% YoY to RM50.1mil, as there was an asset disposal of NU Tower 2 which contributed a profit of RM31mil.

• We are encouraged by the positive performance at MRCB’s property division. Its unbilled property sales stood at RM1.5bil as at end-1QFY17, compared to RM1.2bil at end-4Q16. It recorded 1QFY17 total property sales of RM513mil, and we believe it is on track to achieve its target of RM1.2bil of total property sales in FY17.

• MRCB’s engineering, construction and environment division’s operating profit rose 10% YoY to RM1.3mil on the back of a 1% YoY increase in revenue to RM231.2mil. The major contributor to revenue was mainly the refurbishment and upgrading of facilities works to the National Sports Complex in Bukit Jalil. Construction order book remained at RM7.0bil as at end-1QFY17, with a total unbilled portion of RM5.2bil.

• With its proposed rights issue recently, MRCB’s net gearing will be reduced to 0.01x from 0.73x as at endFY16. We believe the much stronger balance sheet would allow MRCB to undertake more projects that it has it its pipeline currently.

• We believe the outlook for MRCB in 2017 remains positive. Its LRT3 PDP project, a 50:50 joint venture with George Kent Sdn Bhd, is taking off with physical work commencing in 2Q17 and completion scheduled for 2020. We also expect further asset disposals this year, with the Eastern Dispersal Link Highway in Johor, Menara Celcom in PJ Sentral and Ascott Sentral in KL Sentral among the assets that are most likely to be disposed of.

Source: AmInvest Research - 30 May 2017