FY16 CNP of RM244.1m was above expectations, exceeding our/streets’ FY16 full-year estimates by 74%/165%. FY16 sales of RM1.2b were in line with our target. Dividend of 2.75 declared, higher than our full-year expectations of 0.9 sen. No changes to FY17E earnings and sales rollout FY18 of RM75.8m. Maintain MARKET PERFORM with a higher SoP-driven Target Price of RM1.46 (previously, RM1.33).

Above expectations. Exceeding our/streets’ FY16 full-year estimates by 74%/165%, its FY16 CNP of RM244.1m was above expectations. The better-than-expected performance was mainly driven by several sale of assets i.e. Menara Shell, Sooka Sentral, and Jalan Kia Peng land of which we did not manage to capture the earnings from the sale of its Jalan Kia Peng land. Sales was also in line with our target of RM1.2b. Dividend of 2.75 declared, which was higher than our full-year expectations of 0.9 sen.

Fuelled by asset disposals. Its FY16 CNP saw commendable improvements of 68% on the back of higher revenue (+42%) that was driven by several divisions, which saw growth in revenue, i.e. construction (+20%), property development (+71%) and its investment division (+311%). However, the main kicker to its significant increase lies in its investment division which MRCB managed to realise the gains from the disposal of its assets, i.e. Menara Shell, Sooka Sentral, and Jalan Kia Peng land. QoQ, a 540% increase in 4Q16 CNP was mainly driven by similar reasons as above which are the gains on the sale of its assets, and these sales of assets also brought its net gearing down to 0.76x from 1.05x previously.

Outlook. Moving into FY17, management has reduced its sales target to RM1.2b (previously, RM1.5b) banking on their planned launches of Sentral Suites (GDV: RM1.4b), 9 Seputeh Phase 2 (GDV: >RM900.0m), Bukit Rahman Putra (GDV: RM100.0m) and Bandar Sri Iskandar (GDV: RM16.0m). MRCB’s remaining external construction order book is at c.RM7.0b, coupled with c.RM1.2b unbilled property sales providing the group with at least four years of earnings visibility.

No changes in estimates. Post results, there are no changes to our FY17E earnings and sales target of RM68.8m and RM467.8m, respectively. To recap, bulks of its FY16E earnings are driven by asset disposals, and we have not factored any asset disposal in our FY17 sales target, which explains the lower sales target as compared to management’s RM1.2b. That said, we also take this opportunity to roll out our FY18E NP of RM75.7m.

Maintain MARKET PERFORM. We reaffirm our MARKET PERFORM call with a higher SoP-driven Target Price of RM1.46 (previously, RM1.33) after we factored in the gains from the above- said disposals and updated our valuation for MQREIT since our initiation report back in Nov 2016. Nonetheless, we still believe that the main catalyst for MRCB 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 - 28 Feb 2017