Results

1Q reported net profit of RM12m (+128% yoy) accounted for 14.4% and 13.2% of our and consensus full-year forecasts.

We consider the results within expectations as we expect stronger contributions from the property development segment in the coming quarters.

Deviation

None

Dividends

None

Highlights

YoY... Although revenue declined by 17% to RM216.4m (largely due to lower contribution from the engineering and construction divisions), 1Q reported net profit more than doubled to RM12m (from 5.3m a year ago) mainly on the back of higher construction margins and property earnings (as construction works for both Q Sentral office and The Sentral Residence were in full force during 1Q).

QoQ... Reported net profit more than quadrupled to RM12m (from RM2.2m in 4Q), mainly on the back of higher construction margins and property earnings (as construction works for both Q Sentral office and The Sentral Residence were in full force during 1Q).

Risks

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

Forecasts

Unchanged for now, pending further update on analyst briefing.

Rating

BUY

We remain optimistic that the new management will be able to turnaround MRCB’s operations and positive on the de-gearing exercise as well as the intention to turn QCT into one of the biggest REIT in Malaysia. Hence, we maintain our long term BUY call.

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

Negatives: (1) Concerns over projects execution and property take-up rates; (3) 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 maintained at RM2.02 based on SOP valuation (see Figure #2).

Source: Hong Leong Investment Bank Research - 20 May 2014