• Revival play for long term investors. MRCB has come a long way since the installment of new management 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.
• Signs of a turnaround are certainly setting in. 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 pos itive expectation of its EDL’s capital restructuring will significantly reduce interest costs.
• HLIB has a BUY rating on MRCB with institutional target price of RM1.70, or 35% upside. Our institutional research continues to endorse MRCB as a turnaround play set forth by its new management team. Although the pace is not as swift as we had earlier anticipated, signs of a turnaround are certainly setting in. Key catalysts include securing the LRT3 PDP role and successful launch of Kwasa Damansara as well as degearing exercise through sale of assets.
• MRCB’s orderbook currently s tands at RM1.1bn, implying 2.1x FY14 construction revenue. In terms of potential contract flows, we reckon that MRCB (via a JV with George Kent), stands to be in a good position to secure the PDP works (6% fee) for LRT3 (RM9bn). Current P/B of 1.12x is 35% below its 10-year historical P/B of 1.72x.
• Poised to break above long term downtrend line near RM1.34 amid the double bottom formation. MRCB share prices had corrected 41% from 52- week high of RM1.79 on 30 July to a low of RM1.05 on 16 Dec 14 before closing at RM1.27 on 5 June.
• Following the double bottom formation, MRCB share prices have been trending sideways within upper band of RM1.46 (16 Feb high) and lower band of RM1.19 (25 Mar low). We believe the ongoing sideways consolidation is at the tail end and share prices are poised to break above the major downtrend line near RM1.34, supported by bottoming up oscillators.
• A strong breakout above RM1.34 will lift prices higher towards RM1.40 (200-d SMA) and our LT price objective of RM1.51. Key supports are RM1.19 (25 Mar low) and RM1.15 (76.4% FR from RM1.05-1.46). Cut loss at RM1.14.
• We still see a good risk to reward ratio for long term investors with a theoretical entry price of RM1.26 given that the downside to the cut loss zone is 13 sen while the upside to the LT target of RM1.51 is 25 sen.

Source: Hong Leong Investment Bank Research - 8 Jun 2015