CNP of RM56.4m came in above our but below streets’ full- year expectations at 104%/52%. Its 9M17 property sales of RM1.1b are also on track. No dividends declared, as expected. Raised FY17-18E CNP by 44%-13%, respectively. Maintain OUTPERFORM with an unchanged SoP-driven Target Price of RM1.14.

Above our estimate but below streets’. 9M17 CNP of RM56.4m made up 104% and 52% of our and streets’ full-year estimates, respectively. Its performance was way better than expected, due to lumpy billings in 3Q17 from its construction division. The negative variation compared to streets’ estimates could be due to highly optimistic margin assumptions for its construction/property division. The 9M17 property sales of RM1.1b is on track to meet our and managements’ targets of c.RM1.2b as we expect sales to be slower in 4Q17. No dividend declared, as expected.

Results highlight. 9M17 CNP grew 17%YoY underpinned by;(i) strong growth in revenue (+75%), and (ii) lower financing cost (-14%). The strong growth in revenue was mainly driven by its construction division that registered 237% increase in construction revenue due to better billings contribution from projects like the National Sports Complex. QoQ, 3Q17 CNP improved by 57% underpinned by (i) improvement in construction revenue (+96%), (ii) better contribution from associates/joint ventures (+26%), and (iii) improvement in property development margins to 19% (+7ppt).

Outlook.They are on-track to meet their sales target of RM1.2b backed by projects like Sentral Suites (GDV: RM1.4b), Bukit Rahman Putra (GDV: RM100.0m), and Bandar Sri Iskandar (GDV: RM16.0m). MRCB’s remaining external construction order-book stands at c.RM5.3b. Coupled with c.RM1.2b unbilled property sales, these numbers will provide the group at least four years of earnings visibility.

Raising FY17-18E earnings. Post-results, we raised our FY17-18E CNPs by 44-13%, after factoring higher contribution from its construction division and associates.

OUTPERFORM maintained. We reiterate our OUTPERFORM call on MRCB with an unchanged SoP-driven Target Price of RM1.14, which is derived by ascribing a 50% discount to its property RNAV and 8x FY18E PER to its construction earnings. We are positive with the recent rights issuance exercise as it brings MRCB back to a better financial footing. The potential sale of EDL highway would be a catalyst for the stock.

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

Source: Kenanga Research - 22 Nov 2017