News

Yesterday, MRCB announced that its wholly-owned subsidiary MRCB Engineering Sdn Bhd (MESB) together with Hicom Builders Sdn Bhd (HBSB) is setting up a 51:49 JV company namely, Dekad Kaliber Sdn Bhd (DKSB), to undertake the construction works of a new ICQS building at the existing Bukit Kayu Hitam ICQS Complex located at the northern end of the North-South Expressway worth RM310m.

Comments

The construction works for the new ICQS building is MRCB’s second construction orderbook secured in 2015, and we expect the construction to take approximately three years. To recap, MRCB securde RM485m worth of construction job in Desaru in June-15.

Based on its 51% effective stake in the JV, MRCB is in effective replenishing another RM158m from this construction job, bringing its outstanding orderbook to RM1.7b form RM1.5b previously. To date, MRCB has replenished RM643m worth of jobs for 2015.

However, we are neutral on the orderbook replenishment as it is well within our orderbook replenishment assumption of RM1.0b for FY15.

Outlook

MRCB is still planning to launch at least c.RM1.0b worth of development projects in the immediate term, consisting of “affordable” residentials in Kajang (GDV: RM234m), high-end residences near KLCC namely The Grid (GDV: RM387m), and office buildings in Putrajaya (GDV: RM336m).

It has a remaining external construction orderbook of c.RM1.7b; coupled with c.RM1.7b unbilled property sales providing the group with at least two years of earnings visibility.

Forecast

No changes to FY15-16E earnings, as the contract award is within our FY15 orderbook replenishment assumption of RM1.0b.

Rating

Upgrade to MARKET PERFORM

Valuation

Following the recent market sell-down, we are upgrading MRCB from UNDERPERFORM to MARKET PERFORM with an unchanged Target Price of RM1.27 based on our very conservative SoP valuation (refer overleaf). While its share price has been eroded significantly and our SoP valuations are already very conservative, we see no near term catalysts to drive share prices. Additionally, the FY15-16E Core PERs of 30.0x- 25.9x is also not compelling vis-à-vis other developers/contractors while its net gearing remains above our preferred level which may explain the heavily discounted SoP valuation at this juncture.

Risks to Our Call

Stronger-than-expected property sales.

Lower-than-expected sales and administrative costs.

Source: Kenanga Research - 9 Jul 2015