Results

• MRCB reported 3QFY17 results with revenue of RM1.13bn (+50% QoQ, +106% YoY) and core earnings of RM28.1m (+57% QoQ, -4% YoY).
• Cumulative 9M core earnings amounted to RM56.4m, increasing 62% YoY given the low base effect. Our derivation of core earnings removes RM5.5m in disposal gains on Dekad Kaliber (engineering) and Semasa Services (parking) which was booked in 2Q.

Deviation

• 9M core earnings were above expectations at 96% of our full year forecast but below consensus at 52%. The stronger than expected results came from higher than expected property revenue and construction margin.

22 Dividends

• None declared.

Highlights

• Strong property sales. 9M property revenue and EBIT fell YoY by 10% and 40% respectively. This was due to the higher base in FY16 from (i) agency fee earned for the sale of Nu Tower 2 and (ii) contribution from Menara Shell pre- disposal. MRCB achieved strong property sales of RM1.2bn for the 9M period (70% from Sentral Suites), a significant improvement from the RM192m achieved for the entire FY16. Unbilled sales stands at RM1.6bn, implying 1.4x cover on FY16 property revenue.
• Construction improves. Construction revenue increased 237% YoY for the 9M period due to lumpy recognition for the National Sports Complex (NSC). EBIT margin improved YoY from 2.1% to 2.9% but this was “artificially” suppressed as MRCB does not earn a profit from the NSC job (paid via land). YTD job wins now stands at RM468m, bringing its orderbook to RM5.3bn.
• Healthier balance sheet ahead. MRCB’s net gearing stood at 114% as of 3Q. However, with the rights issue (1 for 1) completed earlier this month, we estimate its profoma net gearing to have reduced to 36%. Management estimates that the disposal of EDL, Menara Celcom and Ascott could potentially transform its balance sheet into a net cash position.

In wih Risks

• Volatile core earnings delivery from quarter to quarter.

Forecasts

• We raise FY17-19 earnings by 21%, 13% and 11% after imputing higher construction margins and property sales.

Rating

Upgrade to BUY, TP: RM1.18

• Given its healthier balance sheet post rights issue, coupled with the potential to turn net cash, we reckon that MRCB is now in a much better position to execute its various catalytic projects that it has on its plate. The impending disposal of EDL should serve as a near term catalyst.

Valuation

• Following the increase in our earnings forecast, we upgrade our SOP based TP from RM1.00 to RM1.18.

Source: Hong Leong Investment Bank Research - 22 Nov 2017