Highlight

Result Review…Despite revenue fell by 17%, net profit more than doubled to RM12m mainly due to higher contribution from property division coupled with better margin from engineering and construction.

Degearing on track…Disposal of 30% stake in Duke and Platinum Sentral for a total value of RM1bn is on track. The disposal deal for Duke is likely to complete by 2Q14. We expect MRCB to use the cash proceed to pare down debt with eventual net gearing to fall below 1x.

PJ Sentral’s dispute…The court of appeal for the PJ Sentral dispute will be on 23 June 14 right before the company’s AGM (27 June 14). We believe that MRCB will be seeking a win-win situation with the state government. The PJ Sentral’s GDV is potentially worth RM2.6bn.

Resolution for EDL in sight?...The lingering issue on Eastern Dispersal Link (EDL) is close to resolution. The result option should be either takeover or commence tolling. MRCB is compensating with RM12m per month from government for its inability to commence tolling.

New projects…Penang Sentral and Phase 1 of Nine Seputeh will launch in Q3FY14 and Q2FY14 respectively with combined GDV of RM1.4bn. We also understand the company is negotiating on another piece of land acquisition.

Property… Property business will remain the focus for next 2 years. MRCB is one of the strong bidders for Phase 1 of Kwasa Development Township given its track record as the integrated transportation township builder in KL Central. We understand any potential winner will only commence work in FY15. Old Klang Road project (GDV: RM2.5bn) has seen good take up rate with 55-60% S&P agreement signed.

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 stronger contributions from the property development segment in the coming quarters.

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 - 21 May 2014