MRCB reported 1Q20 results that were above market and our expectations. Net profit jumped 2.8-fold yoy to RM15.6m in 1Q20 from a low base. Maiden contribution from its Melbourne project boosted earnings this quarter. Earnings risk remain high as the full impact of the government’s Movement Control Order (MCO) will likely be felt in 2Q20. Hence, we maintain our earnings forecasts. We reiterate our SELL call and TP of RM0.43, based on a 50% discount to RNAV.

Above Expectations

MRCB reported a net profit of RM15.6m (-278% yoy) in 1Q20, comprising 34% of market consensus full-year forecast of RM45m and 76% of our estimate of RM20m. We remain cautious of its earnings prospects as the full impact of the MCO will likely be felt in 2Q20. We believe its local construction and property operations will see a slow recovery in 2H20 after MCO restrictions were eased to facilitate the re-opening of businesses.

Surge in PBT From a Low Base

Revenue jumped 82% yoy to RM426m in 1Q20, mainly driven by the recognition of revenue for its Carnegie residential project in Melbourne. PBT surged 219% yoy to RM26.9m in 1Q20 from a low base. Operating profit for its construction division declined 25% yoy to RM12.6m, while property earnings jumped 5.8-fold yoy to RM20.6m in 1Q20.

Weak Property Sales

The Carnegie project saw the delivery and earnings recognition for some of the completed and sold units (88% take-up rate). Other projects that contributed to revenue includes Sentral Suites in KL Sentral, 9 Seputeh and PJ Sentral Garden City. It achieved RM36m property sales in 1Q20, mainly from the sale of its inventory units in Klang Valley. High construction order book of RM20.7bn and property unbilled sales of RM1.3bn will sustain its activities over the long term.

Reiterating Our SELL Rating

We remain cautious on MRCB’s earnings prospects given the execution risks for its projects and the disruptions from the pandemic. Hence, we reiterate our SELL call and 12-month target price of RM0.43, based on a 50% discount to RNAV. Key upside risks to our call are stronger property sales and progress billings

Source: Affin Hwang Research - 29 Jun 2020