MRCB’s 2018 result was within our expectation but above market expectations. Net profit fell 38% yoy to RM101m in 2018 due to lower construction and property earnings. The termination of the Eastern Dispersal Link (EDL) concession and repayment of borrowings to the government reduced its net gearing to 19% in 2018. We expect strong core EPS growth of 47% yoy in 2019E, driven by higher progress billings for its construction and property divisions. Maintain BUY with lifted TP of RM0.98, based on 40% discount to RNAV.

Within Expectation

Net profit of RM101m in 2018 was 12% above market consensus forecast of RM90m but close to our estimate of RM96m. Revenue fell 29% yoy due to lower progress billings for its construction division. The National Stadium project was completed in 2017. Progress on the Light Rail Transit Line 3 (LRT3) project slowed down due to the review of the project cost in 2018 and the cost was only finalised last month. The completion of the Easton Burwood project in Melbourne in 2017 and higher operating costs led to lower property earnings in 2018. New projects such as Sentral Suites in KL Sentral and TRIA in 9 Seputeh are still at early stages on completion.

Lower Core Net Profit

PBT fell 54% yoy to RM123m in 2018 due to lower construction (-39% yoy) and property (-42% yoy) earnings. Net profit declined by slower rate of 38% yoy mainly due to lower minority interest. One-off gain of RM68.9m from the sale of land in Batu Kawan and Jalan Kia Peng shored up earnings in 2018. Core net profit fell by a sharper 83% yoy to RM23m in 2018 on weaker construction and property segment performance.

High Order Book and Unbilled Sales

MRCB achieved property pre-sales of RM470m in 2018, mainly contributed by its Sentral Suites and 9 Seputeh projects. Unbilled sales of RM1.56bn will support property earnings going forward. Its high construction order book of RM21.8bn and property gross development value of RM31bn will sustain its core activities over the long term. The reduction in net gearing from a high of 125% in 2015 to 19% in 2018 will also allow the group to gear up and accelerate development of its land bank with total size of 282 acres. We cut our 2020 core EPS forecast by 13% to reflect slower property launches and introduce our 2021 estimate. We raise our TP to RM0.98 from RM0.90 to reflect lower net debt. Maintain BUY.

Source: Affin Hwang Research - 27 Feb 2019