- We maintain our BUY call on MRCB with a marginally lower fair value of RM2.20/share – based on an unchanged 20% discount to its revised sum-of-parts (SOP) value. The slight tweak of its fair value takes into account a higher share base following the completion of MRCB’s acquisition of PJ Sentral Development Sdn Bhd.

- MRCB reported 9MFY14 earnings of RM49mil, a huge improvement from RM111mil losses in 9MFY13. Property earnings returned to the black at RM114mil, thanks to ongoing billings from QL Sentral and the Sentral Residences as well as maiden contributions from 9 Seputeh. Likewise, construction earnings shrugged off the legacy losses of last year to post a profit of RM44mil on an EBIT margin of c.14%.

- We draw comfort with the fact that MRCB appeared to have delivered on most of its restructuring milestones it set forth earlier this year. For one, the full consolidation of PJ Sentral’s development potential is now possible following MRCB’s buyout of the balance 30% stake in September.

- During the same month, MRCB finalised the disposal of MRCB Technologies for RM8mil. Earlier in June, MRCB had completed the disposal of its 30% stake in DUKE highway for RM228mil.

- On a slightly negative note, the SPA for the group’s proposed disposal of its Platinum Sentral Development in KL Sentral for RM740mil and a resulting 31% stake in Quill Capital Trust had been extended to January 2015.

- Despite lowering our earnings base for FY14F – largely on timing differences for its property launches and construction prospects – our revised FY14F core net profit forecast of RM61mil still represents a huge improvement from the RM109mil net loss the group recorded in FY13.

- As its restructuring moves (anchored by the monetisation of non-core assets) are intact, net gearing improved to ~1.4x as at 30 June 2014 (FY13: 1.7x) and is expected to improve further.

- Newsflow momentum is picking-up; MRCB won a RM197mil contract to build a 30-storey tower in JB. More recently, it was reportedly pre-qualified to bid for the RM800mil Kepong waste-to-energy incinerator project. The group’s 9 Seputeh development will likely benefit from its plans to construct a RM115mil overhead bridge linking Old Klang Road to the NPE.

- We envisage more NAV upside moving into FY15F via the following:- (i) future development profits from PJ Sentral & Kwasa Damansara; (ii) potential monetisation of its prime commercial assets at KL Sentral, starting with Platinum Sentral; (iii) Penang Sentral (piling has commenced); and (iv) selective construction bids.

Source: AmeSecurities