Results

1QFY13 core earnings fell 76% to RM5.3m (0.38 sen/share), falling short of expectations by making up 7% of ours and consensus’ full year forecasts.

Deviations

Due to slower property billings for QSentral and Sentral Residences.

Dividends

None. Usually declared in the 4Q.

Highlights

YoY… Revenue plunged by 20%, largely due to sharp decline in property billings whereby development progress for QSentral and Sentral Residences was slow. Moreover, take-up rates for both launches remained unchanged at 62% (see Figure #3). Hence, the importance of the MRCBGapurna merger to ensure continuity of development profits for MRCB. Overall, MRCB posted small earnings of RM5.3m, weighed down mainly by the property division.

QoQ… Revenue contracted by 14%, likewise due to the poor showing in the property division. On a brighter note, construction division rebounded to profitability after posting losses in the last 2 quarters. However, EBIT margin was low at 4% due to the competitive bidding for the LRT Extension project.

Earnings visibility… Overall, MRCB has an outstanding construction order book of ~RM1.1bn (see Figure #2), translating to ~2.0x FY12 construction revenue and effective unbilled property sales of ~RM747m (see Figure #3), translating to ~1.1x FY12 property revenue.

Risks

Execution risk; Regulatory and political risk; Rising raw material prices; and Unexpected downturn in the construction and property cycle.

Forecasts

Unchanged as we expect property billings to pick up in the subsequent quarters.

Rating

BUY

• Positives: (1) New construction contract wins; (2) Acquiring strategic land banks; (3) Favourable buyout terms for EDL.
• Negatives: (1) Concerns over execution for projects; (2) Concerns over take-up rates for property launches; (3) Delays by the Government to buyout EDL; (4) High net gearing levels; (5) Short-term earnings dilution arising from share swap with Gapurna.

Valuation

• Target Price of RM2.15 based on Sum-of-Parts Valuation maintained

Source: Hong Leong Investment Bank Research - 27 May 2013