MRCB’s net profit jumped 149% yoy to RM21.5m 1Q18 from a low base in 1Q17. The result was below market and our expectations. But 1Q is seasonally a weak quarter due to the festive holidays. The acceleration in progress billings for its large-scale projects such as LRT Line 3 will boost earnings in subsequent quarters. We reiterate our BUY call with a 12-month target price of RM0.94, based on 40% discount to RNAV.

Below Expectations

MRCB’s net profit of RM21.5m in 1Q18 only comprises 10% of our fullyear forecast of RM217.3m and 8% of consensus estimate of RM259.6m. MRCB saw slow property sales given uncertainties prior to election and some of its new construction projects are still at early stages of implementation. Revenue declined 18% yoy to RM427.6m as all divisions posted lower revenue – construction (-17% yoy), property (-9% yoy), infrastructure (-98% yoy) and building services (-23% yoy).

Surge in Construction Earnings

Construction operating profit jumped 11.8-fold to RM16m as progress billings accelerated for its projects such as LRT Line 3 (share of joint venture profit), MRT Line 2 and several commercial buildings. Remaining order book of RM4.9bn, equivalent to 2x its construction FY17 revenue, will sustain its activities. However, property earnings fell 50% yoy to RM24m in 1Q18 as the lumpy earnings from its Easton Burwood project in Melbourne was recognised in 1Q17.

Slow Property Sales

MRCB achieved property sales of RM101m in 1Q18, mainly from its Nine Seputeh and Sentral Suites projects. The weak property sales were due to weak market sentiment and political uncertainties prior to election. But high unbilled sales of RM1.6bn will sustain earnings in FY18E.

Maintain BUY

The share price has corrected sharply over the past month following the surprise election outcome. Current share price at 63% discount to RNAV/share of RM1.56 is attractive. Maintain BUY.

Source: Affin Hwang Research - 31 May 2018