Results

9MFY13 reported losses of RM111.3m (-7.83 sen/share). After EI adjustment of RM33.3m for fair value losses, core losses was RM78.1m (-5.49 sen/share).

Deviation

Due to provisions totalling RM158.7m in 3Q itself (see Figure #3 for further details).

Dividends

None. Usually declared in the 4Q. Highlights Below is the key takeaways from MRCB’s 9MFY13 briefing, which was chaired by newly elected CFO, Mr. Ann Wan Tee:

Results review… 3Q revenue slumped by 47%/14% YoY/QoQ to RM159.7m mainly due to the accounting impact from provisions which totalled RM158.7m. The construction division incurred provisions of RM108m, mainly from Lot G NuSentral Mall and Perdana Sentral Towers (RM68.5m).

RM55.4m provision was incurred in the property division for fair value adjustment on Lot G 2 office towers which was sold to Hanadaol with a guaranteed rental. Upon securing tenants for these 2 blocks (767k sq ft), MRCB will be able to writeback this provision. Overall, core losses of RM89.2m in 3Q itself wiped out 1HFY13 profits, to post core losses of RM78.1m for 9MFY13.

Construction… Management acknowledges that construction division has been weak and will be better managed going forward. Management expects a GP margin of 10% for new projects. We were also surprised to find out the MRCB has gotten the LOI for KVDT upgrading works worth RM800m (60% stake).

Property… Old Klang Road (GDV: RM2.5bn) has been soft launched with more in the pipeline. We are relieved with this news as it was only relying on QSentral and Sentral Residences for property contribution in the past 2 years.

Maintain Shariah… Although reclassified under Shariah non-complaint, MRCB intends to comply with the debt criteria in the next review.

Risks

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

Forecasts

Forecasting core losses of RM47.2m for FY13, while slashing FY14 earnings by 45% to RM83.2m and introducing FY15 earnings forecast (RM141.8m).

Rating

BUY

Despite the losses, we are hopeful that the new management will be able to turnaround MRCB’s operations. Hence, we maintain our long term BUY call on the company.

Positives: (1) Success in acquiring PJ Sentral land; (2) New construction contract wins; (3) Acquiring strategic land banks

Negatives: (1) Concerns over execution for projects; (2) Concerns over take-up rates for property launches; (3) Decision delays by the Government on EDL; (4) High net gearing levels; (5) Short-term earnings dilution arising from share swap with Nusa Gapurna.

Valuation

TP trimmed by 3.7% to RM2.06 from RM2.14 based on SOP Valuation (see Figure #6).

Source: Hong Leong Investment Bank Research - 2 Dec 2013