Period     1Q13

Actual vs. Expectations    MRCB’s 1Q13 net profit of RM5.3m accounted for only 7% and 6% of ours and the consensus estimates respectively. Nonetheless, we deem the results to be within our expectations as we expect most of MRCB’s FY13 earnings to be delivered in 2H13.

Dividends    There was no dividend declared in 1Q13

Key Results Highlights     QoQ, both the revenue and net profit declined by 16% and 76% to RM313m and RM5.3m respectively. The weak bottom line performance was attributed mainly by a lower contribution from the property division. The 1Q13 property revenue dropped significantly by -67% due to a high base effect. MRCB had recognised most of its property sales in 4Q12 as some of its projects (i.e. KL Sentral Lot G and hotels) were already at the advance stage of completion in 4Q12 even though some of them were fully completed only in early 2013.  

YoY, the 1Q13 net profit also fell significantly by 76%, weakened by: 1) the lower property division revenue and 2) lower construction margin. Nonetheless, the lower property revenue is understandable as it could not recognise the higher sales in 1Q13 as yet since most of its ongoing property developments namely KL Sentral Lot B (Q Sentral) and Lot D (The Sentral Residence) were still at the early stages of development.  Hence, we expect MRCB to record most of its full year earnings in 2H13. 

Outlook    Its outlook remains bright, especially now after GE13 as we expect the long-standing issues on its Eastern Dispersal Link (EDL) to be resolved soon.  

We also upbeat on its property division as it now has a bigger property GDV potential (i.e. RM5.8b) from Nusa Gapurna, mostly in the prime Klang Valley area (i.e. PJ Sentral, Subang, OUG, etc.). 

Change to Forecasts   There are no changes in our forecasts as we expect MRCB to report stronger earnings numbers in 2H13.

Rating  Maintain OUTPERFORM

We are maintaining our OUTPERFORM recommendation on MRCB as we believe it is one of the stocks that has a brighter earnings visibility mainly after (1) its share swap deal with Nusa Gapurna and (2) the conclusion of GE13 where we expect its EDL issues to be resolved soon and ETP-based contract flows to continue. 

Valuation     We are maintaining our Target Price of RM2.08 based on our RNAV-based valuation. 

Risks    Delays in construction projects.

Rising building material costs. 

Source: Kenanga