Macquarie Equities Research (MQ Research) published a report today (Tuesday, 6 Aug) on MRCB, summarising key takeaway from a recently released media interview, which mainly discussed MRCB’s financial performance. While MQ Research thinks there will be a potential earnings lag in FY19E due to timing issues, it still maintains an Outperform rating on MRCB with target price (TP) retained at RM1.20.

Event

• MQ Research maintains an Outperform rating with its TP maintained at RM1.20 following management’s recently released a media interview on the company’s outlook, which centred on MRCB’s earnings delivery in FY20E. MQ Research’s key takeaway is that MRCB could be faced with timing issues in terms of earnings recognition in FY19E, given that bulk of the MRCB Land projects will only deliver earnings in FY20E. On top of that, the stalling of the LRT3 project, which has now resumed, could further impact FY19E earnings delivery. We should see the actual impact of the above post 2Q19 results in late-August.

Impact

• 2Q19 results – what does MQ Research expect? On MRCB Land – MQ Research thinks margin could remain depressed in 2Q19 as the key projects such as Sentral Suites and 9Seputeh are still at the podium stage, which means minimal revenue could be recognised at this stage. MRCB Construction – the LRT3 works only resumed end of June; as such, there could be little contribution from the project too. Further, management also guided that the PR1MA Brickfields project has now been stalled due to the client’s insufficient funds.

• Kwasa Damansara C8 plot has been progressing well, launch of residential units targeted for 1H20E. According to management, the construction of the EPF new headquarters is progressing well and with further development approvals from the municipality could commence the launch of the residential units in the vicinity between 1Q–2Q FY20E.

• Large order book but majority yet to contribute to earnings. Fiscal year-to-date (FYTD) MRCB had secured a total order win of RM472mn vs. MQ Research’s target of RM5bn. MQ Research believes MRCB remains one of the key contenders to bag large sum of contracts from the East Coast Rail Link (ECRL) project, given that it is the biggest Bumiputra contractor tendering for the project. Despite its outstanding order book of RM22bn, 64% of the value has yet to deliver earnings, as the projects have yet to kick off. Management guided that it could reignite listing plans of MRCB Construction once all the projects have begun to contribute to its earnings.

Earnings and Target Price Revision

• No change.

Price Catalyst

• 12-month price target: RM1.20 based on a Sum of Parts methodology.
• Catalyst: ECRL awards

Action and Recommendation

• Outperform rating reiterated.

12-month Target Price Methodology

• MRC MK: RM1.20 based on a Sum of Parts methodology

Source: Macquarie Research - 6 Aug 2019