MRCB has bagged a MRT2 viaduct package V210 worth RM648m. We are NEUTRAL on this award, which is deemed within our FY16E construction orderbook assumption of RM1.0b. Hence, we make no changes to our FY16-17E earnings. Maintain MARKET PERFORM with an unchanged TP of RM1.39.

Work Package V210. Yesterday, MRT Co. in their media release announced that they were awarded two more viaduct packages, i.e. V210 and V203, with MRCB bagging V210, which is worth RM648m. Work package V210 consisted of a 2.6km viaduct guideway and other associated works from Persiaran APEC in Cyberjaya to Putrajaya Sentral, which is part of the four work package contracts awarded for the construction of the MRT Sungai Buloh-Serdang-Putrajaya (SSP) line (MRT2), with a combined value of RM4.2b. Thus far, we gather that MRCB has not received any official letter from MRT Co., which explains the absence of an announcement to Bursa Malaysia on the job award. However, we are expecting a formal announcement from MRCB once they obtain the formal documents from MRT Co.

Within expectations. We are neutral on this news as the project value of RM648m is within our construction orderbook replenishment assumption of RM1.0b. Year-to-date, MRCB has bagged RM704.8m worth of construction works, representing 70.5% of our FY16E construction orderbook replenishments with a remaining RM295.2m balance to be filled. Prior to this on 5th April 2016, MRCB’s wholly-owned subsidiary, MRCB Builders Sdn Bhd signed a RM56.8m contract with Jupiter Lagoon Sdn Bhd to construct a cold storage processing and distribution centre for GCH Retail (Malaysia) Sdn Bhd, which operates the Giant chain of hypermarkets and supermarkets in Malaysia. Assuming pre-tax margin of 7%, the MRT 2 contract is expected to contribute c.RM6.8m to MRCB’s bottom-line per annum, which is already factored into our FY16-17E earnings of RM38.4-65.3m.

Outlook. While this contract is within expectation, we note that MRCB has already bagged 70.5% of our construction replenishment assumptions within five months of FY16, and we may look to upgrade our construction orderbook assumptions if they continue securing jobs at this pace. Currently, MRCB’s remaining external construction orderbook is at c.RM3.2b, coupled with c.RM1.6b unbilled property sales providing the group with at least two years of earnings visibility.

Note that we make no changes to our FY16-17E earnings of RM38.4-65.3m as this is still within our estimates. Reiterate MARKET PERFORM and TP of RM1.39 based on FY16E NTA/share of RM1.10 and a Forward P/NTA of 1.26x which is -1SD to the average 6-year historical mean. We apply a below average Fwd. P/NTA due to weakening sentiment on the stock arising from: (i) softer property segment, (ii) dilution of existing shareholdings from the placement, and (iii) RAM’s downgrade of the Southern Link’s junior sukuk, while positives arising from the construction segment are mostly within expectations at this juncture. Due to its compelling turnaround plans, we maintain our valuations although earnings may be weak in the near-term. Downside risks to our call include; (i) weaker than expected property sales, (ii) lower than expected sales and administrative cost, (iii) negative real estate policies (iv) tighter lending environments

Source: Kenanga Research - 13 May 2016