Results

• MRCB announced 3QFY16 results with revenue of RM551m (+42% QoQ, +47% YoY) and core earnings of RM29m. The latter was a stark improvement compared to RM1m in 2QFY16 (QoQ) and RM6m in 3QFY15 (YoY).
• Despite strong 3Q recovery, cumulative 9M core earnings of RM35m was still down -21% YoY due to a weak 1H.

Deviation

• 9M core earnings were above expectations, surpassing our full year forecast of RM25m by 40%. The surprise results were due to our earlier expectations that the weak 1H numbers would persist into 2H.
• Against consensus, 9M core earnings made up 36% but this could possibly be due to estimate distortions from EIs.

Dividends

• None declared.

Highlights

• Property performs well. 9M property revenue increased +29% while EBIT was much stronger at +85% due to margin expansion (25.5% vs 17.8%). Key developments contributing were Sentral Residences, MRCB Putra, 9 Seputeh and PJ Sentral. Sales amounted to RM409m for the 9M period, declining from RM467m last year. Unbilled sales of RM1.4bn translates to a strong 2.4x cover on FY15 property revenue.
• Construction recovers. The construction division staged a strong recovery in 3Q with EBIT of RM10m compared to breakeven levels in 1-2Q. This recovery was aided by the completion of Ampang LRT ext which plagued margins in 1H. MRCB has manged to bag RM1.2bn worth of new jobs YTD, bringing its orderbook to RM5.2bn, implying a strong cover of 6.7x on FY15 construction revenue.

In wih Risks

• Inconsistency in quarterly core earnings delivery.

Forecasts

• In light of the stronger than expected earnings recovery, we raise FY16 earnings by 123% and FY17 by a lesser magnitude of 18% (FY18 unchanged).

Rating

Maintain HOLD, TP: RM1.37

• Whilst there is certainly no lacking of catalytic projects that MRCB has in hand, the issue here as always, is about core earnings delivery. Despite the strong recovery posted in 3Q, we are holding our horses for a rating upgrade as we remain cautious on its core earnings consistency.

Valuation

• Following our earnings upgrade, our SOP based TP is revised upwards from RM1.23 to RM1.37. The implied P/E at our TP continues to remain expensive at 53x and 41x for FY16-17.

Source: Hong Leong Investment Bank Research - 01 Dec 2016