Results 

• 9MFY14  core  earnings  came  in  at  RM55.7m  (excluding disposal  gains  from DUKE and Penang Sentral) vs .  a loss of RM111.3m  the previous  year (due to provisions).

Deviation 

• The  3Q  earnings  rebound  came  in  as  a  positive  surprise  to us,  brining  9M  numbers  to  surpass our full year estimate by 36%  as  we  may  have  been  too  conservative  on  both  its property  sales and corresponding  revenue  recognition.

Dividends

• None. Dividends usually declared  in 4Q.

Highlights 

Adding  on  to  job  wins.  Construction  contribution  mainly resulted  from  works  on  the  LRT  extension  and  some  write backs  for  the  CIMB tower job post account settlement.   EBIT margin  was  healthy  at  13.9%  (FY13  comparative:  -23.4%). Its  orderbook  currently  stands  at  RM1.2bn,  implying  a decent  2.5x  cover  on  FY13  rev enue.  MRCB  also announced a  RM141m  job  win  for  a  resort  in  Desaru,  bringing  YTD  job wins  to  RM338m.  It  has  also  been  prequalified  for  the  1000 tonne  per  day  waste  to  energy  incinerator  (RM800m)  in Kepong  of  which tenders  will close in Dec.

New  developments  contributed.   Apart  from  the  usual  KL Sentral  related  developments  (Q  Sentral  and  Sentral Residences),  3Q  also  witnessed  the  maiden  contribution from  9  Seputeh  and  PJ  Sentral.  Since  its  launch  in  2Q,  9 Seputeh  has  achieved  take  up  rate  of  42%  (selling  at  an average  price  of  RM850  psf).  Both  the  PJ  Sentral  towers which have been sold en bloc (MyIPO and MBSB) are still at the  early  stage  of  completion  (10-17%) and  progress billings should accelerate in the coming quarters.  

EDL’s  maiden  contribution.  Tolling  commenced  on  1  Aug and  MRCB  will  no  longer  be  receiving  compensation  from the  Government.  Indications  are  that  the  toll  collections  are pretty much indifferent  from the compensation  sum received.  

Risks

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

Forecasts

We  raise  our  FY14  earnings  from  RM41m  to RM78m as we impute  higher  property  sales  and  accelerate  our  recognition of unbilled  sales.

Rating

BUY TP: RM1.91

• MRCB remains a BUY as a turnaround play brought in by its new  management  team.  We  reckon that this quarter’s result is an early indication that its turnaround  is gaining traction.

Valuation

• Our  SOP  based  TP  is  reduced  slightly  from  RM1. 97  to RM1.91 after  we update for the latest balance sheet items.

Source: Hong Leong Investment Bank Research - 19 Nov 2014