Period

4Q15/FY15

Actual vs. Expectations

FY15 core net loss of RM74.7m was below market and our core net profit expectations of RM60.1m and RM19.2m, respectively. This is after stripping out gains on disposal of RM70m for Nu Sentral and accounting for deferred taxes of RM43m in 4Q15.

The reason for the results missing our expectation was due to higher-than-expected expenses incurred by management in 4Q15.

Year-to-date sales of RM597m made up 119% of our FY15E sales target of RM500m.

Dividends

None, as expected.

Key Results Highlights

QoQ, revenue was up slightly by 4% mainly due to the property segment from multiple projects (i.e. Sentral Residences, 9 Seputeh, Q Sentral and Lot G). However, EBIT was in the red (-130%) due to additional cost incurred on various projects (i.e. Sg. Pahang project). That coupled with higher interest expense (+14%), dragged pre-tax profit down to RM0.4m (-99%). There was also a deferred tax contribution of RM43.1m from the re-assessment of the Government interim payment received in respect of Eastern Dispersal Link Expressway (EDL) in previous financial years, as well as gains on disposal from Nu Sentral (RM70m). Stripping that out, bottomline was in the red at RM81.7m.

YoY-Ytd, topline was up by 12% to RM1,696.7m on contributions from construction and infrastructure segments. However, higher interest expense (+8%) due to full-year impact of the EDL, coupled with: (i) one-off disposal gains on Platinum Sentral (RM220m) in 1Q15, (ii) one-off gains on Salak South land (RM38m) and writebacks on land provision for Nu Sentral Mall (RM34m) in 2Q15, and (iii) disposal from Nu Sentral (RM70m) and deferred tax (RM43.1m) in 4Q15 dragged down bottomline by 280% to a core net loss of RM74.7m.

Outlook

No changes to MRCB’s plan to launch at least c.RM1.0b worth of development projects in FY16 consisting of “affordable” residentials at 3 Residences, Kajang (GDV: RM195m), high-end residences near KLCC namely The Grid (GDV: RM415m), Semarak City (GDV: RM3,162m), and office buildings in Putrajaya (GDV: RM336m). However, given the weak property market, we would not be surprised if the group scales back launches.

It has a remaining external construction orderbook of c.RM2.5b which coupled with c.RM1.6b unbilled property sales provide the group with at least two years of earnings visibility.

Change to Forecasts

We lower FY16E by 13.5% to account for higher cost and thus lowering net margins to 1.9% from 2.2% in FY16, while we introduce our FY17E numbers.

Rating

Maintain MARKET PERFORM

Valuation

Maintain MP and TP of RM1.39 based on FY16E NTA/share of RM1.11 (from RM0.94) post-housekeeping, and a lower Fwd. P/NTA of 1.26x which is -1SD to the average 6-year historical mean, (from 1.48x) which was previously at between -0.5SD to - 1.0SD.

We apply a below average Fwd. P/NTA due to weakening sentiment on the stock arising from: (i) dilution of existing shareholdings from the new placement, and (ii) RAM’s downgrade of the Southern Link’s junior sukuk. We maintain our valuations although earnings may be weak in the near-term due to its compelling turnaround plans.

Risks

(i) weaker-than-expected property sales, (ii) lower-than-expected sales and administrative cost, (iii) negative real estate policies, and (iv) tighter lending environment.

Source: Kenanga Research - 23 Feb 2016