MRCB reported 1QFY19 earnings of RM4m (+1682% QoQ, -81% YoY), made up 6% of our full year forecast (consensus: 7%). We deem the results inline as we expect higher recognition of property unbilled sales in subsequent quarters and higher contribution from LRT3 JV in 2H. MRCB’s orderbook stands at c.RM16bn (excluding LRT3 orderbook as it is equity accounted), translating to a tremendous 20.7x cover on FY18 construction revenue. YTD property sales stands at RM75m, mainly from Sentral Suites project (69% of sales). Management is aiming for RM800m sales target in FY19. Maintain forecast and HOLD rating with higher SOP-driven TP of RM0.86 (from RM0.72) as we raised PE multiple ascribed to construction division to 15x (from 12x) in view of improved domestic construction outlook and updated model after release of annual report.

Deem within expectations. MRCB reported 1QFY19 results with revenue of RM234.1m (-37% QoQ, -45% YoY) and core earnings of RM4.1m (>100% QoQ, -81% YoY). The latter made up only 6% of our full year forecast (consensus: 7%). While this may appear to be a shortfall, we regard this as inline in anticipation of (i) higher recognition of property unbilled sales in subsequent quarters and (ii) higher contribution from LRT3 JV in 2H when work recommences.

QoQ. Core PATAMI increased significantly to RM4.1m (from RM0.2) mainly due to lower share of losses from JVs attributable to RM0.5m profit earned from LRT3 PDP JV (against losses recorded in 4Q18).

YoY. Core PATAMI decreased -81% mainly due to lower contribution from property segment. This is due to construction completion of 2 significant property projects, namely VIVO in 9 Seputeh and Kalista Park Homes in Bukit Rahman Putra, which resulted in revenue from sales in these projects no longer being progressively recognised. Remaining development profits from these projects will only be recognised upon completion of SPA which we expect to happen in subsequent quarters.

Construction. MRCB’s orderbook stands at c.RM16bn (excluding LRT3 orderbook as it is equity accounted), translating to a tremendous 20.7x cover on FY18 construction revenue. This is mainly due to recognition of Bukit Jalil Sentral contract as external orderbook after disposing of the project to EPF. Despite the sizable cover ratio, we note that some of the development contracts are very long term in nature which will not translate to near term revenue.

Property. YTD property sales stands at RM75m, mainly from Sentral Suites project (69% of sales). Management is aiming for RM800m sales target in FY19 with RM100m from clearing completed inventories and the rest from launching new projects. Current unbilled sales stand at c.RM1.6bn which implies a healthy cover of 2.4x on FY18 property revenue.

Forecast. Maintain forecast as we deem results inline. We introduce our FY21 earnings forecast of RM77.0m.

Maintain HOLD, TP: RM0.86. Maintain HOLD with higher SOP-driven TP of RM0.86 (from RM0.72) as we raised PE multiple ascribed to construction division to 15x (from 12x) in view of improved domestic construction outlook and updated model after release of annual report. FY19-21 implied PE of our TP are 59.2x , 51.0x and 48.3x respectively.

Source: Hong Leong Investment Bank Research - 6 Jun 2019