MRCB’s 1Q19 result was disappointing. Net profit plunged 81% yoy and 84% qoq to RM4m in 1Q19. Lower joint venture (JV) income for LRT Line 3 (LRT3) project due to the government’s project review to reduce cost. Slower progress billings for ongoing property projects while several projects were completed in 2018. We cut our core EPS forecasts by 11-23% in 2019-21E to reflect the lower property earnings. We downgrade our call to HOLD from Buy with a reduced target price (TP) of RM0.90, based on 40% discount to RNAV.

Disappointing Result

Net profit of RM4m (-81% yoy) in 1Q19 was only 4% of market consensus and our previous 2019 forecasts of RM108-116m. We were surprised by the low property earnings and JV income. Revenue fell 45% yoy and 37% qoq to RM234m mainly due to slower progress billings for its property development division. Construction completion of VIVO (9 Seputeh) and Kalista Park Homes (Bukit Rahman Putra) resulted in revenue from sales in these 2 projects no longer being progressively recognised. LRT3 contributed PAT of RM0.5m in 1Q19 compared to RM9m in 1Q18 to JV income.

Weak Property Sales

MRCB achieved pre-sales of RM75m in 1Q19, mainly from its Sentral Suites condominium project in KL Sentral. It remains optimistic of achieving its target property sales of RM0.8bn in 2019 with new bookings for its 9 Seputeh project that is pending the signing of Sales and Purchase Agreements (SPA). Unbilled sales of RM1.6bn will shore up its property earnings as progress billings accelerate in 2H19.

Downgrade to HOLD

MRCB sold its 30% stake in the St Regis Hotel and Residences project to CMY Capital for RM117.3m on 23 May 2019. Net disposal gain of about RM54m will boost its earnings in 2Q19. Hence, we upgrade our net profit forecast by 27% to RM137m in 2019E to reflect the gain despite cutting our core net profit forecast. We cut our RNAV/share estimate to RM1.50 from RM1.63 to reflect higher net debt, lower investment properties’ valuation and rolling forward our valuation base year to 2020E. Based on the same 40% discount to TP, we cut our TP to RM0.90 from RM0.98. We downgrade our call to HOLD from Buy after the strong share price outperformance of 63% over the past 12 months. Key upside/downside risks are stronger/weaker property sales and progress billings.

Source: Affin Hwang Research - 31 May 2019