FY17 CNP of RM101.2m came in above our, but below consensus’, full-year estimates, at 130%/91%. Property sales of RM1.4b also came in above both our and management target of RM1.2b. Declared 1.75 sen dividend, higher than our 1.5 sen. Raised FY18E CNP by 34%, introduce FY19E CNP of RM186.8m. Maintain OUTPERFORM with higher Target Price of RM1.30.

Above our estimate but below consensus. FY17 CNP of RM101.2m made up 130%/91% of our/consensus’ estimates. The better-than- expected performance was attributable to; (i) lower interest cost arising from capitalisation and repayment of debts, (ii) better contribution from joint-venture i.e. PDP with GKENT, and (iii) lower contribution to minority interest. The negative variation compared to consensus could be due to higher margin assumptions for its construction/property division. FY17 property sales of RM1.4b exceeded both our and management’s target of RM1.2b. Declared 1.75 sen dividend, slightly higher compared to our expectation of 1.5 sen.

Results highlight. FY17 CNP grew 361%, YoY backed by: (i) decent revenue growth (+17%), (ii) sharp reduction in interest cost (-34%), and (iii) significant decrease in minority interest (-72%). Main contributor to its revenue growth was its construction division, which saw construction revenue increasing by 107% due to the delivery of Bukit Jalil project. 4Q17 CNP surged 59%, QoQ, despite a significant drop in revenue of 64% thanks to: (i) improvements in associate/jv contribution (+26%), (ii) sharp decrease in interest cost (-95%), and (iii) improvement in property development and construction operating margins that ranges between 13ppt- 26ppt to 29%-32%.

Outlook. MRCB’s remaining external construction order-book stands at c.RM5.2b, and coupled with c.RM1.7b unbilled property sales, these numbers will provide the group at least four years of earnings visibility. Going forward, management are looking for more land banking opportunities and sales target of RM1.0b for FY18 backed by its previous launches, i.e. Sentral Residences and 9 Seputeh. Construction and property division aside, management remains hopeful to dispose EDL highway in FY18.

Raise FY18E earnings. Post-results, we raised our FY18E CNP by 34% after adjusting our margin assumptions and effective interest cost after management’s move in capitalising interest cost into project levels, and introduce our FY19E CNP of RM186.8m.

OUTPERFORM maintained. We reiterate our OUTPERFORM call on MRCB with a higher SoP-driven Target Price of RM1.30 (previously, RM1.25) as we factored in a higher construction profit in our FY18E CNP revision. We ascribed 50% discount to its property RNAV and 8x FY18E PER to its construction earnings. The 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 - 01 Mar 2018