Period  2Q14/1H14

Actual vs. Expectations For 1H14, MRCB registered core earnings (continuing operations) of RM29.1m that came in largely within expectations, accounting for 58% and 44% of our full-year estimate and consensus of RM49.6m and RM65.7m, respectively. Our estimates are lower than consensus as we anticipated higher depreciation for 2H14 due to the commencement of toll collections on EDL highway.

Dividends  No dividend was declared, as expected.

Key Results Highlights YoY, MRCB saw its 1H14 earnings soared substantially by 164% from RM11.0m to RM29.1m while its revenue only improved by 18% to RM530.3m. The significant growth in earnings was mainly driven by the sale of DUKE highway whereby MRCB registered gains of RM94.9m. Its property division’s operating profit of RM65.8m saw huge improvements (+49%) in 1H14 underpinned by strong revenue growth (+62%) mainly driven by Q Sentral Office and The Sentral Residences where construction is in full-swing.

 QoQ, MRCB registered core earnings of RM22.9m in 2Q14 which improved by 274% also mainly due to the reasons mentioned above. While its property division saw a slump in operating profit (-13%) due to compressions in margin to 19% (-4ppt), its engineering and construction division’s operating profit saw a huge leap (+71%) to RM9.2m backed by strong revenue growth (+74%) as most of its construction projects have begun to pick up pace, i.e. Ampart LRT project.

Outlook  We believe that MRCB is heading towards the right direction; growing its property division given its niche in integrated transport hub development and the development of PJ Sentral and Penang Sentral would further propel the group forward as one of the niche developers in town.

Change to Forecasts No changes to our earnings estimates.

Rating Maintain OUTPERFORM

Valuation  We continue to maintain our long-term OP call on MRCB with an unchanged SoP driven TP of RM2.48 (refer overleaf for more details) as its longterm prospects in property development remain intact and we also see MRCB monetising more of their non-core assets, i.e. EDL highway in the future to focus on its integrated transport hub developments.

Risks to Our Call Delays in construction projects.

 Lower-than-expected orderbook replenishments.

Source: Kenanga