MRCB recorded a core net loss of RM34m in 2019 due to weak operating performance, high depreciation and interest expense. Net exceptional gain of RM58m from disposal of Sg Regis Hotel stake lifted the bottom line to record a net profit of RM23.7m. The result was above market and our expectations following earlier earnings cuts. We cut our 2020-21E core EPS forecasts by 17-27% to reflect slower progress billings for construction and property divisions. We reiterate our SELL call with a reduced 12-month target price (TP) of RM0.53, based on 60% discount to RNAV.

Shored Up by Exceptional Gain

MRCB reported a net profit of RM24m (-77% yoy) in 2019, slightly above market consensus and our forecasts of RM19-21m. Excluding the one-off gain of RM58m from the disposal of its 30% stake in St Regis Hotel recognised in 2Q19, the core net loss was RM34m in 2019. The pick-up in construction operating profit lifted core net profit by 139% qoq to RM6.0m in 4Q19 from RM2.5m in 3Q19.

Weak Property Sales

MRCB achieved pre-sales of RM537m in 2019, mainly from its Sentral Suites and 9 Seputeh projects. MRCB expects progress billings on Sentral Suites to accelerate in 2020 to boost property development earnings. It delayed launches of new property projects as market sentiment remains weak and it is focusing on selling its inventories and unsold units. Unbilled sales of RM1.6bn will shore up its property earnings as progress billings accelerate in 2020.

Slow Pick-up in LRT3 Progress

Progress billings for LRT3 remain slow on the reduced new contract value agreed with the government. MRCB’s share of works for the LRT3 is RM5.7bn, contributing 26% of its total order book of RM21.8bn (remaining order book is RM20.7bn) as at end-2019. LRT3 contributed net profit of RM1.2m in 9M19 compared to RM20.7m in 9M18.

Maintain SELL

We cut our RNAV/share estimate to RM0.89 from RM0.97 to reflect higher net debt and a lower property development valuation on expectation of slower new project launches, eg, PJ Sentral project. Based on an unchanged 60% discount to RNAV, we cut our TP to RM0.53 from RM0.58. Maintain our call to SELL. Key upside risks are stronger property sales and progress billings.

Source: Affin Hwang Research - 5 Mar 2020