Period  4Q13/FY13

Actual vs. Expectations MRCB’s full-year core net loss of RM54.6m in FY13 came in below our expectation as we had previously overestimated its construction division profits. One of the reasons the division still making losses due to higher costs incurred from some of the existing projects. Nonetheless, starting FY14, management has committed that it will adopt new business model that is more “cost conscious” to protect its margins.

Dividends  Despite the losses, MRCB still declared a first and final dividend of 1.0 sen which translated into only 0.6% dividend yield.

Key Results Highlights QoQ, MRCB managed to register a small profit of RM2.2m in 4Q13 thanks to its property division, driven by KL Sentral projects i.e. Q Sentral (Lot B) and Sentral Residence (Lot D) which partly offset the losses in construction division.

 YoY, 4Q13 core net profit of RM2.2m declined significantly by 90% due to the construction division loss.

 YTD, MRCB registered a net loss of RM54.6m in FY13 due to the huge provisions made in 3Q14 following the kitchen-sinking exercise by the management. We expect earnings to turn around from this year onwards driven by: (i) unbilled property sales of RM1.2b, (ii) RM1.1b construction orderbook, (iii) interest expenses savings following the reduced debts after the Platinum Sentral and DUKE highway disposals.

Outlook  We now believe that MRCB is executing its turnaround plans which it shared previously in an analysts’ briefing

last year. After selling the 30% stake in the DUKE highway and monetising Platinum Sentral, there are a few more major developments in the pipeline that will accrete the Group’s value namely: (i) injecting other property investment portfolios worth more than RM1.0b into REITs,(ii) higher possibility of replenishing its order book of about RM1.0b this year driven by building and infra projects, and (iii) emerging as one of the frontrunners of Kwasa Damansara development project.

Change to Forecasts While we are maintaining our FY14 numbers, we introduced FY15 net profit forecasts of RM98.8m, translating into 53% net profit growth.

Rating Maintain OUTPERFORM

 With the stock offering potential upside of 30%, MRCB could be a “Dark Horse” of the year after being bashed down due to a string of negative news/developments (i.e. huge provisions of RM167m due to poor executions, EDL “limbo”, PJ Sentral’s NGD-PKNS court tussle) last year.

Valuation  Our Target Price is maintained at RM2.02 based on SoPderived valuation, at this juncture. We will adjust for the Platinum Sentral – Quill Capita deal upon a definitive agreement being reached.

Risks to Our Call Delays in construction projects.

 Lower-than-expected property sales

Source: Kenanga