INVESTMENT HIGHLIGHTS

• 1QFY17 Results below expectations

• Dismal performance from lower construction activities

• Earnings estimates unchanged

• Altogether, we reaffirm our BUY recommendation with a revised TP of RM2.08

1QFY16 Results below expectations. MRCB’s 1QFY17 PATAMI of RM10.8m (+248%YoY) came in below expectations accounting for a dismal 3.2% and 7.4% of ours and consensus’ estimates respectively. Despite that, its revenue surged from RM524m (+20.2%YoY) led by increase in revenue of property segment (46.2% of TR*) of RM242.2m (+58.5%YoY).

Dismal performance from lower construction activities. Revenue from construction segment of RM231.2m (+1.0%YoY) stagnated due to lower pace construction activities as the bulk of its work now concentrated in National Sports Complex, Bukit Jalil to prepare for the 29th South East Asian Sports, 2017. We are expecting construction activities for Cyberjaya City Centre to pickup in 2Q17 onwards. Hence, we reckon that construction activities will show its mettle to recoup the current tepid performance.

Earnings estimates unchanged. We are persistent on the prospect on MRCB’s earnings for FYE17 due to its ability to recover from transient earnings blips. MRCB is currently embarking on rights issue of up to 2.8bn shares that could possibly reduce its total debt of RM3.7bn to RM2.1bn (minimum scenario). This would spur its ability to progress in projects such as Kwasa Damansara and strengthen its balance sheet.

Recommendation. We maintain our BUY call with an adjusted SOP based TP of RM2.08. Our TP reflects the DCF (WACC of 8.0%) of toll concession, updated RNAV of on-going property development projects; book value of investment properties and earnings multiples over recurring facilities management businesses.

Source: MIDF Research - 30 May 2017