MRCB’s 3Q16 result was above expectations. Net profit fell 74% yoy to RM79.3m in 9M16, mainly due to lower asset disposal gains. Core net profit fell 19% yoy to RM32.1m, mainly due to lower construction earnings. We upgrade our EPS forecast by 80% in FY16E to reflect the potential RM127m gain from disposal of Menara Shell and a piece of land in Kuala Lumpur. We lift our EPS forecasts by 8-13% in FY17- 18E for higher property development earnings. Maintain BUY with lifted target price of RM1.50, based on a 20% discount to RNAV.

Above expectations

Net profit of RM79.3m in 9M16 comprised 82% of consensus full-year forecast of RM96.4m and exceeded our previous estimate of RM72.6m. We were surprised by the jump in property development earnings. Revenue increased 5% yoy to RM1.38bn in 9M16, driven by higher property revenue. Core net profit fell 19% due to higher operating expense and normalisation of tax rate (28.5% in 9M16 compared to 12% in 9M15).

Lower asset disposal gains

MRCB saw asset disposal gains of RM44.4m from the sale of Sooka Sentral and RM2.8m from the sale of its stake in a construction joint venture to Ekovest. These lifted MRCB’s bottom line in 9M16. However, this was lower than the one-off gains of RM259.3m realised in 9M15. MRCB’s shareholders have approved the proposed sale of Menara Shell to MRCB-Quill REIT for RM640m for potential net gain of RM89m.

Strong property sales

MRCB achieved property sales of RM1.16bn in 9M16, exceeding its RM1bn sales target in 2016. Encouraging booking figures during the soft launch of its Kalista high-end landed residential project in Bukit Rahman Putra and Sentral Suites in KL Sentral will contribute to its higher sales target of RM1.5bn in 2017. Unbilled sales of RM1.4bn and a construction order book of RM5.2bn will drive core EPS growth 69% yoy in FY17E.

Good long-term prospects

The completion of the private placement of new shares (equivalent to 20% of share capital) has cleared the share overhang, raising RM408m cash to reduce its net gearing position to 1x. Maintain BUY. Key risks are slower property sales and delay in proposed asset disposals.

Source: Affin Hwang Research - 1 Dec 2016