MRCB’s 1QFY21 core earnings of RM5.2m were below our and consensus expectations. Operations were hampered by labour shortages and SOP constraints. Productivity so far has been sub-60%. MRCB’s outstanding orderbook stands at c.RM17.0bn translating to a tremendous c.32x cover made up of long dated jobs. Property sales are on pace with last year and could be sustained. Cut FY21-22 earnings by 12-36%. Maintain HOLD with lower TP of RM0.42. Our TP implies a FY21/22 P/E multiple of 74.0x/35.8x/32.0x.

Below expectations. MRCB reported 1QFY21 results with revenue of RM226.6m (- 27% QoQ, -47% YoY) and core earnings of RM5.2m (against core loss of -RM0.3m in 4QFY20; -67% YoY). The results were below our/consensus expectations coming in at 13/15% of full year forecast. Results shortfall was largely due to weaker than expected construction billings.

Dividends. No DPS were declared during the quarter. Dividends are typically declared in 4Q.

QoQ. 1QFY21 performance return to the black from core loss of -RM0.3m in 4QFY20 largely on the back of a lower taxes as well as operating margin improvements at property and facilities management segments. This more than offset a -27% fall in revenue, resulting from declines in all segments.

YoY. MRCB suffered a -67% contraction at the bottom-line dragged by a -47% loss of revenue. All segments saw revenue contraction: construction (-52%), property (-44%) and facilities management (-30%). Recall that MRCB had to close multiple sites toward the end of 2020 whereby the impact on billings and progress continued into 1QFY21. The imposition of MCO2.0 and labour shortage has resulted in construction productivity of sub 60%. Also, 1QFY20 performance were also boosted by the handover and settlement of 1060 Carnegie project.

Construction. MRCB’s outstanding orderbook stands at c.RM17bn (excluding LRT3 as it is equity accounted), translating to a sizable c.32x cover on FY20 construction revenue (inflated by slow 2020 billings) which are comprised of long term projects. We gather that most of MRCB sites would be allowed to work under the lockdown but productivity levels would be subpar mainly due to labour shortages, SOPs and possible supply chain issues. However, it is noteworthy that MRCB has yet to receive official confirmation for work today. All of this points toward weaker performance in the coming quarters. On tenders, MRCB has not placed any new tenders so far with new sizable jobs (>RM150m) scarce.

Property. Unbilled sales amounts to RM1.0bn representing 1.6x cover on FY20 property revenue. 1QFY21 sales achieve came in at RM52m (2/3rd from 1060 Carnegie), on pace to match FY20 figures. 1060 Carnegie should continue to boost property contribution having reached 90% take-up YTD. Management will be looking to review launch plans in the coming weeks; possible delays from some in light of new developments. On a positive note, HOC has been extended to end 2021 which would undoubtedly support MRCB’s property division. Some launch plans previously bandied by management amounted to GDV of RM1.0bn comprising developments like Kwasa Sentral (RM275m), PJ Sentral (RM524m) and KL Sentral (RM229m). Adding to this, MRCB is sitting on completed unsold inventory of RM451m.

Forecast. Slash FY21-23 earnings by -35.2/15.1/12.0% after toning down billings and margin assumptions.

Maintain HOLD, TP: RM0.42. Maintain HOLD with lower SOP-driven TP of RM0.42 (from RM0.44) post-earnings adjustment. Our TP implies a FY21-23 P/E multiple of 74.0x/35.8x/32.0x. The stock lacks upside catalysts while its low P/B multiple of 0.41x could support share price.

Source: Hong Leong Investment Bank Research - 1 Jun 2021