We are neutral on the contract award from Turnpike Synergy Sdn Bhd for a portion of SUKE highway worth RM323.0m as it falls within our FY19E order-book replenishment target. No changes to FY18-19E earnings. Maintain MARKET PERFORM with an unchanged SoP- driven Target Price of RM0.750.

News. Yesterday, MRCB announced that they have bagged a contract award amounting to RM323.0m from Turnpike Synergy Sdn Bhd for the construction works of SUKE highway under work package CA2. The construction works for this portion is expected to be completed in April 2020.

Neutral. This marks MRCB’s first construction win for the year. However, we are neutral on the contract win of RM323.0m as it is within our FY19E order-book replenishment of RM1.5b. Assuming a conservative pre-tax margin of 5%, this job is expected to contribute c.RM9.7m to its bottom-line in FY19E.

Outlook. Going forward, management is targeting sales of RM1.0b for FY19 with planned launches of RM0.9b for the year of which RM0.5b is from its Australian project in Docklands. Its existing outstanding order- book stands at a massive value of c.RM21.3b with a visibility of more than 5 years. However, we are much more prudent with our sales target as we are only expecting sales of RM0.5b as compared to management’s target of RM1.0b as we remain conservative given the current challenging climate in the property sector.

Earnings review. No changes to our FY18-19E earnings.

Maintain MARKET PERFORM. We maintain MARKET PERFORM, with an unchanged SoP-driven Target Price of RM0.750. Our Target Price implies a price-to-book ratio of 0.75x, which is close to its trough levels. We opine that the long-term outlook for the company is relatively stable compared to other contractors or developers due to their massive outstanding order-book and transit-oriented-developments. However, we note that management would need to step up in increasing operational efficiency by further lowering operating costs to remain competitive and improve overall profitability as margin erosions have been evident.

Risks to call include: (i) higher-than-expected property sales and construction replenishment, (ii) lower-than-expected administrative costs, (iii) positive real estate policies, and (iv) encouraging lending environment.

Source: Kenanga Research - 29 Jan 2019