MRCB’s net profit fell 22% yoy to RM62m in 9M17, mainly due to lower one-off gains. Core net profit increased 24% yoy to RM57m in 9M17, mainly due to higher construction and property development progress billings. We lift our EPS forecasts by 3-15% in FY17-18E to reflect stronger construction earnings with improvement in profit margin. We lift our TP to RM1.02 from RM0.94, based on a 10% discount to RNAV. Maintain HOLD.

Above Expectations

MRCB’s revenue surged 50% qoq and 106% yoy to RM1.13bn in 3Q17 due to the one-off recognition of RM1.13bn revenue (accounting convention) for the National Stadium Complex (NSC). But we gather that no earnings were recognised for the NSC project as this forms the land cost for the 70-acre land near the NSC as payment from the government. But net profit fell 22% yoy to RM62m in 9M17 due to lower one-off gains of RM5.4m in 9M17 compared to RM44.4m in 9M16.

Surge in Construction Earnings

Construction operating profit jumped 366% yoy to RM46.5m in 9M17 due to higher progress billings and higher margin of 2.9% in 9M17 compared to 2.1% in 9M16. Its new projects with better margins such as LRT3 and Kwasa Damansara have not started to contribute significantly to earnings and profit margin depressed by the NSC project revenue, which did not contribute to earnings. Property earnings fell 51% yoy due to the absence of a RM44.4m gain from disposal of non-core assets and loss of rental income of RM6.7m from Menara Shell, which was disposed in Dec 2016.

Maintain HOLD

MRCB achieved property sales of RM1,157m in 9M17 with the maiden launches for the Sentral Suites (Tower 1-3) and Kalista, Bukit Rahman Putra, projects. It could exceed its target sales of RM1.2bn in FY17. We revise up our fully-diluted RNAV/share to RM1.28 from RM1.17 to reflect higher valuation for its EDL concession and construction division (higher earnings and PER of 14x vs 12x previously). Maintain HOLD call with a TP raised to RM1.02 from RM0.94, based on 20% discount to RNAV. Key upside/downside risks are stronger/weaker property sales and higher/lower construction margin.

Source: Affin Hwang Research - 22 Nov 2017