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 1HFY17 net profit of RM33.8mil made up 29% of our full-year forecast and 27% of consensus. We deem this to be broadly in line, as we expect a stronger performance in 2H17, 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 engineering and construction division.

• The property development division registered a 29% YoY growth in revenue to RM486.5mil in 1HFY17, 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 30% YoY to RM79.8mil, as there was a gain from disposals of non-core assets of RM44.4mil and higher contribution of rental income from Menara Shell in 1H16.

• We are encouraged by the positive performance at MRCB’s property division. Its unbilled property sales stood at RM1.55bil as at end-1HFY17, compared to RM1.5bil at end-1Q17. It recorded 1HFY17 total property sales of RM942mil, and we believe it will be able to achieve its target of RM1.2bn of total property sales in FY17.

• MRCB’s engineering, construction and environment division’s operating profit grew 415% YoY to RM15.3mil on the back of a 110% YoY increase in revenue to RM2698.9mil. 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 RM6.3bil as at end- 1HFY17, with a total unbilled portion of RM5.5bil. It won RM409mil of new projects in YTD.

• 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 Aug 2017