1Q17 CNP of RM10.5m came in at 15% and 7% of our and streets? full-year estimates, respectively. We deem it to be broadly within our expectations banking on stronger 2H17 but deem to be below that of consensus. Property sales of RM513m exceeded our target of RM468m but still within management?s target of RM1.2b. Raised FY17-18E CNP by to 10%-28% with revised sales of RM1.1b. Maintain MARKET PERFORM with an unchanged ex-all TP of RM1.32.

Broadly inline? MRCB only registered CNP of RM10.5m in 1Q17, accounting for 15% and 7% of our and streets? full-year estimates, respectively. While we deem that its 1Q17 to be broadly inline with our expectations as we expect earnings to pick in 2H17, we opine that it is below consensus expectations as consensus might have been overly aggressive on their construction margin assumptions. Positively, its 1Q17 property sales of RM513.0m came in above our overly conservative target of RM467.8m mainly driven by overwhelming response from Sentral Suites. However, it is still within management?s target of RM1.2b.

Results review. On YoY basis, MRCB managed to turn around its CNL of RM18.9m into CNP of RM10.5m. This was mainly due to i) significant decrease in interest cost (-25%) as a result of its de- gearing exercise which they have managed to pare down its net gearing from 1.27x to 0.94x, and ii) narrowing of losses from its investment and other division which saw losses narrowed by 70%. QoQ wise, 1Q17 CNP saw a significant drop by 94% on the back of a softer revenue (-49%) as they did not recognise any gains from major asset disposals in 1Q17 vis-�-vis the recognition of the gains from the sale of Menara Shell and Jalan Kia Peng land back in 4Q16.

Outlook. Moving into FY17, management are maintaining their sales target at RM1.2b 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 stands at c.RM7.0b. Coupled with c.RM1.5b unbilled property sales, these numbers will provide the group with at least four years of earnings visibility.

Raising earnings. Post results, we raised our FY17E-FY18E CNP by 10%-28% after revising our sales upwards to RM1.1b (previously, RM0.5b) for FY17-18E, respectively.

MARKET PERFORM maintained. We reiterate our MARKET PERFORM with an unchanged SoP-driven Target Price to RM1.32 (cum-rights TP, RM1.65), despite our upgrade in earnings backed by higher sales target of RM1.1b for FY17-18E as we believe that MRCB needs to manage its resources properly to avoid further unnecessary cash calls in the future, which is driven by overly aggressive land banking activities.

Downside risks to our call include: (i) weaker-than-expected property sales, (ii) higher-than-expected administrative cost, (iii) negative real estate policies, and (iv) tighter lending environment.

Source: Kenanga Research - 30 May 2017