• Time for execution. MRCB has come a long way since the new management came in 2013. Management has delivered on much of its major promises to transform MRCB to become a property-centric group, which include the divestment of non-core assets, unlocking value of its first investment property and acquisition of quality parcels of landbanks within the Klang Valley.
• For MRCB, 2015 would be another year of major asset monetisation which would significantly address concerns of its high gearing and could include the potential of further REITs injection of its investment properties as well as disposal of other non-core assets. Moreover, the positive expectation of its EDL’s capital res tructuring will significantly reduce interest costs.
• HLIB has a BUY rating on MRCB with an institutional target price of RM1.88, or 41% upside. We are giving MRCB’s new management the benefit of the doubt that it can successfully turn the company around in the long term. Catalysts include successful launch of Kwasa Damansara and winning the PDP role for LRT3 in which it is said to be the top contender.
• The RM1.88 is based on the SOP method which implies 21x FY15 P/E but a more palatable 13.5x on FY16 once earnings momentum starts to set in. Moreover, current P/B of 1.18x is 31.4% below 10-year historical P/B of 1.72x.

• Upside bias after triangle breakout. Since staging a triangle breakout on 16 Apr, MRCB has been trading sideways. We believe the 59.6% correction from a near 4-year high of RM2.60 (2 Aug 2011) to a low of RM1.05 (16 Dec 14) could be at the tail end and since prices are also trading above the key 20- d/30-d/50-d/100-d SMAs, we think more upside is likely, supported by grossly oversold slow stochastic, tick-up in RSI and MACD is climbing towards the zero line. Near term supports are RM1.29 (50-d SMA) and RM1.26 (daily uptrend line). Cut loss below RM1.22.
• As long as the daily uptrend line support near RM1.26 is not violated, ongoing recovery is still in the early stage. A decisive breakout above RM1.39 (27 Apr high) will spur prices higher towards RM1.44 (200-d SMA and 76.4% FR) and our long term objective of RM1.57 (26 Nov 2014 high and weekly long term downtrend line).
• We still see a good risk to reward ratio for long term investors with a theoretical entry price of RM1.33 given that the downside to the cut loss zone is 11 sen while the upside to the LT target of RM1.57 is 24 sen.

Source: Hong Leong Investment Bank Research - 11 May 2015