9MFY21 CNL of RM59m came below expectations on: (i) weak property and construction contributions impacted by FMCO and (ii) taxes incurred despite registering losses. 9MFY21 sales of RM165m are broadly within our RM180m target as launches slated for 4QFY21 are deferred yet again. Current unbilled sales stood at RM0.94b while effective outstanding order-book stood at RM5.3b. Post results, we widen FY21E loss by 154% to RM75m and reduce FY22 earnings by 43%. Maintain MP with lower SoP-TP of RM0.345 (from RM0.405).

Below expectation for the sixth time. 3QFY21 core net loss (CNL) of RM32m dragged 9MFY21 CNL to RM59m – below our loss projection of RM30m and consensus’s profit projection of RM1.7m. Despite already factoring for the FMCO lockdowns imposed from June till mid-August 2021, losses incurred by its construction segment were wider-than-expected and property contributions were weak attributable to the low revenue which were unable to cover fixed costs and thus led to weaker-than-expected margins. Also, MRCB incurred taxes despite its losses which deviated against our positive tax projections. No dividends declared as dividends are normally dished out in the 4th quarter.

3QFY21 sales of RM58m led 9MFY21 property sales to RM165m – broadly within our RM180m target as initially planned launches from Kwasa Sentral (GDV of RM275m) in 4QFY21 have been deferred yet again. To recap, management had initially guided for three launches (with GDV of RM1b) in the beginning of the year; scaled down to one property launch in August 2021 (during its 2QFY21 briefing) and has now entirely deferred all its launches. Given its weak sales, current unbilled sales have deteriorated consecutively for nine quarters from a high of RM1.76b (in 2QFY19) to RM0.94b currently.

Highlights. QoQ, 3QFY21 CNL of RM32m was flat as it was equally affected by the FMCO. YoY, despite the less stringent MCO, 9MFY21 CNL of RM59m was worse off compared to 9MFY20 CNL of RM0.5m due to the lower revenue recognised (-34%) on lower brought forward unbilled sales of RM1.1b (vs. RM1.6b) and effective outstanding order-book* of RM0.9b (vs. RM1.2b) at the start of the period.

*We derive effective outstanding order-book by deducting: (i) idling projects i.e..Bukit Jalil-related contracts worth RM11b and Finas worth RM170m, (ii) Kwasa Utama C8 contract worth RM2.9b which is a complete pass-through, and (iii) LRT3 which is parked at the JV level from its unbilled outstanding order-book as of FY20.

Outlook. During its quarterly briefing, management revealed that they had purchased a land in Surfer’s Paradise, Brisbane Australia for AUD17m earmarked for an AUD296m development to be launched in 2023. While land/GDV ratio is extremely appealing at 5.7%, execution remains the key for earnings delivery. As of 3QFY21, effective outstanding order-book stood at RM5.3b (of which RM4.4b or 84% is derived from LRT3 which is now consolidated given the recent 50% acquisition stake from GKENT).

Widen FY21E CNL to RM75m (from RM29m previously) and lower FY22E earnings by 43% to RM27.9m after factoring for reduced margins given the high cost structure within both its construction and property segment which limits earnings delivery given the lack of revenue drivers.

Maintain MP on a lowered SoP-TP of RM0.345 (from RM0.405) after (i) halving PBV valuation for its investment properties to 0.5x, (ii) factoring for lower construction earnings, and (iii) removing the value of its facilities management unit from our SOP as contributions from this unit has been minimal. The high cost structure coupled with inefficient deployment of resources to generate revenue is likely to weigh down on its earnings for the foreseeable future.

Source: Kenanga Research - 29 Nov 2021