MRCB’s net profit of RM167.6m (-37% yoy) in 2017 was above market and our expectations. We were surprised by exceptional gains of RM66.3m in FY17 and higher-than-expected construction earnings. Core net profit increased more than 4-fold to RM117.2m in 2017. We fine-tune our 2018-19E EPS forecasts (+1-2%) and introduce our 2020E EPS (+19% yoy). We maintain our HOLD call with a raised TP of RM1.20, based on 20% discount to RNAV.

Above Expectations

MRCB’s net profit of RM167.6m in FY17 was 82-89% above consensus and our forecasts of RM89-92m. MRCB realised exceptional gains before tax of RM66.3m, which relates to the 59Inc (joint venture with Lembaga Tabung Haji to develop the Setapak land), sale of Semasa Services and Dekad Kaliber. Core PBT of RM181m (+23% yoy) in 2017 was also above our forecast of RM158m due to higher-than-expected construction earnings. But the lower exceptional gains of RM66.3m in 2017 compared to RM245.4m in 2016 led to PBT declining 37% to RM247m in FY17.

Surge in Construction Earnings

Construction core PBT increased 7-fold to RM93m in 2017. PBT margin improved to 5.2% in 2017 compared to 1.4% in 2016 with higher contribution from infrastructure projects such as the LRT3 (50% share of joint venture profit amounting to RM15.2m) and MRT Line 2 V210 package. Its outstanding order book of RM5.2bn will sustain construction earnings growth ahead.

Exceeded Target Property Sales

MRCB achieved property sales of RM1.42bn in 2017, exceeding its initial target sales of RM1.2bn. The bulk of the sales came from its Sentral Suites project in KL Sentral (RM886m). Property development core PBT increased 28-fold to RM46m in FY17. MRCB set a more cautious sales target of RM1bn in FY18 due to the sustained weak market conditions. High unbilled sales of RM1.74bn will sustain property earnings.

Maintain HOLD

We raise our RNAV/share estimate to RM1.50 from RM1.28 previously to reflect higher valuation for its construction division, Kwasa Damansara and KL Sports City projects. Maintain HOLD call with a TP raised to RM1.20 from RM1.02, based on 20% discount to RNAV.

Source: Affin Hwang Research - 1 Mar 2018