9M16 CNP of RM56.0m makes up 39%/58% of our/consensus estimates. We deem the results as within our, but above consensus, forecasts, as the latter might not have factored in the potential gain from the sale of Menara Shell. Property sales of RM1.2b is deemed to be above our and management sales target of RM0.6b and RM1.0b, respectively, as we previously did not classify the sales of commercial asset into our sales target. No changes in FY16-17E core earnings. Maintain MARKET PERFORM with an unchanged SoP-driven Target Price of RM1.33.

Within expectations. 9M16 CNP of RM56.0m makes up 39% and 58% of our and consensus forecasts, which we deem is within ours but above consensus’ as we are expecting MRCB to recognise the profit from the sale of Menara Shell in 4Q16, which we believe that consensus might not have factored in. Property sales of RM1.2b is deemed to have exceeded our and management targets of RM0.6b and RM1.0b, respectively, after reclassifying the sale of its commercial assets, i.e. Menara Shell (RM640.0m) and Putrajaya Office (RM371.0m) as property sales which we normally exclude. As such, our FY16E sales is RM1.2b after accounting for sales of commercial assets. No dividends declared as expected.

Result highlights. While its 9M16 top line grew by 5% YoY its CNP saw a sharp fall of 75%. This is mainly due the absence of the recognition of a sizeable commercial property sale as compared to 9M15 in which MRCB registered a massive gain from the disposal of Platinum Sentral and other assets.

QoQ, its 3Q16 CNP came down by 35% despite an impressive growth of 42% in revenue largely due to similar reasons mentioned above as they recognised the gain on the sale of Sooka Sentral in 2Q16 while there is no recognition of sale of commercial properties in 3Q16.

Outlook. Moving into FY17, management has a tall sales target of RM1.5b from launches at Sentral Suites (GDV: RM1.4b), Bukit Rahman Putra (GDV: RM415m) and Bandar Sri Iskandar (GDV: RM43m). MRCB’s remaining external construction order book is at c.RM6.7b, coupled with c.RM1.4b unbilled property sales providing the group with at least four years of earnings visibility.

No changes in estimates. Post “reclassification” of our sales target, we increase FY16E sales to RM1.2b (from RM600m). However, we make no changes to our FY16-17E core earnings as we have already factored in the potential gain from the sale of Menara Shell but did not classify the sale into our FY16E property sales target.

Maintain MARKET PERFORM. We reaffirm our MARKET PERFORM call with an unchanged SoP-driven Target Price of RM1.33, as we believe that the main catalyst for MRCB still lies on the disposal of EDL highway, which would drive the group to greater profitability arising from interest cost savings.

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, and (iv) tighter lending environment.

Source: Kenanga Research - 01 Dec 2016