- We reiterate our BUY call on MRCB with an unchanged fair value of RM2.22/share, on an unchanged 20% discount to its NAV.

- Yesterday, MRCB announced on Bursa Malaysia that it had won three construction jobs worth a combined RM485mil in Desaru Coast, Johor from Destination Resorts and Hotel (DRH).

- The three awards are for:- (1) A conference centre and one level of basement car (RM61mil); (2) Desar Desaru (RM212mil) – a 386-key hotel in nine blocks of fivestorey buildings; and (3) Westin Desaru Resort (RM211mil) – a 275-key hotel in four blocks of four to five storeys buildings.

- This is MRCB’s first construction win for FY15F. This follows two other contracts that it secured in Johor last year. They were the J Land Tower in JB (RM197mil) and Aman Desaru project (RM141mil) in Kota Tinggi.

- We make no changes to our earnings forecast, as the latest award forms part of our new orderbook assumptions for FY15F.

- MRCB’s prospects are perking up moving into 2H15. Earlier this week, the local press reported that the MRCB-George Kent JV is among three outfits that are shortlisted for the Project Delivery Partner (PDP) role for the RM9bil Klang Valley LRT 3 line (LRT 3).

- This reaffirms our earlier conviction that the duo could be a key beneficiary of the LRT 3 project given:- (i) the combined experience in rail works; and (ii) MRCB’s proven track record in managing the KL Sentral transport hubs.

- Beyond this, we draw comfort that MRCB’s conscious efforts to rebuild its balance sheet is taking shape with the completion of the MRCB-Quill REIT deal. Any future asset injections into the REIT and its associated recurring income should provide MRCB with more headroom to deleverage. At the moment, MRCB’s net gearing is ~1.4x (FY14: 1.5x).

- There could upside risk to our earnings, as we have yet to account for:- (i) a 41% stake in Quill Capita Management (QCM); and (ii) the recently acquired German Embassy land (GDV: ~RM1.3bil).

- Moreover, future asset injections into MRCB-Quill REIT and recurring income should provide more headroom for MRCB to deleverage. It is also maintaining its new property sales target of ~RM1bil for FY15F despite a challenging market.

Source: AmeSecurities Research - 25 Jun 2015