Yesterday, MRCB announced that they had secured two contracts; (i) DASH (Damansara-Shah Alam), and (ii) TNB staff quarters, cumulatively worth RM409m. We are NEUTRAL on the awards as these contracts are their first wins of the year and their YTD total win is also within our FY17E replenishment target of RM1.0b. Maintain our FY17- 18E earnings. Upgrade to OP with unchanged cum/ex TP of RM1.65/1.32.

Two contracts wins. Yesterday, MRCB announced that they had secured two new contracts – (i) DASH package CB2 worth RM369m from Turnpike Synergy S/B slated for completion in 26 months, and (ii) RM40m contract for TNB HQ package slated for delivery in 15 months. The scope of works for the DASH package comprises the construction and completion of mainline and other associated works from CH.12453.000 to CH.14342.371 while the works from TNB include the construction of a Balai Islam and staff quarters in Bangsar. We note that these are MRCB’s first two contract wins for FY17.

Neutral on the win. We are NEUTRAL on the award given that MRCB’s YTD wins of RM409m is still within our FY17E replenishment target of RM1.0b; making up 40% of our replenishment target with a remainder of RM0.6b to be achieved for the rest of year. Assuming PBT margins of 7%, these newly secured projects are expected to contribute c.RM9.9m to MRCB’s bottom-line per annum.

Outlook. For FY17, management have sales target of 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.RM7.4b. Coupled with c.RM1.5b unbilled property sales, these numbers will provide the group with at least four years of earnings visibility.

Earnings unchanged. We make no changes to our FY17-18E numbers as the above-mentioned awards are within our order-book replenishment assumptions of RM1.0b for FY17.

Upgrade to OUTPERFORM. We upgrade our call to OUTPERFORM from MARKET PERFORM with an unchanged SoP-driven Target Price of RM1.32 (cum-rights TP, RM1.65), given that its share price saw a sharp retracement since the announcement of its rights issuance exercise, and we are anticipating its upcoming results to come within our expectations given that our FY17E CNP is more conservative compared to street’s estimates.

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.

* On a post rights issuance basis.

Source: Kenanga Research - 16 Aug 2017