- We maintain our BUY call on MRCB with an unchanged fair value of RM2.20/share - a 20% discount to its RNAV. MRCB reported 1QFY14 core net profit of RM12mil (4Q13: core net loss of RM3mil).
- While 1Q earnings only made ~13% of both consensus and our forecasts, we deem the results to be in line as sequential work progress should pick up in the coming quarters.
- MRCB continues to make good progress with its quarterly earnings momentum. The construction division continues to improve, chalking up an EBIT of RM5mil with no major provisions during the quarter.
- However, property development & investment activities continue to anchor earnings, accounting for ~61% of group EBIT. The construction pace for key projects, i.e. Lot B (Q Sentral Office) and Lot D (The Sentral Residences) have picked up noticeably.
- We continue to like MRCB as a deep-value restructuring play as the group morphs into a property-centric firm with an improving balance sheet structure.
- In April, MRCB signed a conditional sale & purchase agreement to dispose Platinum Sentral to Quill Capita Trust (QCT) for RM750mil.
- We believe that the move will herald the unlocking of value of MRCB’s other prime office/commercial buildings, notably those within KL Sentral (e.g. Shell Tower, Ascot Residences).
- Via the deal, MRCB is set to emerge with an effective 31% stake in QCT. The group also proposed to acquire a 41% stake in Quill Capita Management (QCM), the management company of QCT. The entire transaction is expected to be concluded by 3Q14. We maintain our earnings forecast for now.
- We expect MRCB’s share price to be continually underpinned by several catalytic newsflow, particularly those related to its asset monetisation initiatives.
- Several other possible catalysts in the works in the coming months include:- (i) ongoing negotiations on the status of its Eastern Dispersal Link (EDL) highway in Johor; (ii) a positive resolution for the PJ Sentral Garden City project; (iii) Penang Sentral project in Butterworth, which may take off by 4Q14 as per local reports; and (iv) Phase 1 of KWASA Damansara (outcome of bids could be known by the end of the month).
Source: AmeSecurities
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