INVESTMENT HIGHLIGHTS

• 12MFY17 results below expectations

• Rising OPEX still leading to dwindling earnings

• In the midst of reviewing earnings forecasts

• Altogether, we reaffirm our BUY stance with a TP of RM1.36

12MFY17 results below expectations. MRCB’s FY17 PATAMI of RM 164.3m (-38.2%YoY) came in below our expectations accounting for 49.6% and 146.6% of ours and Streets’s respectively. However, MRCB revenue rose from RM2.4bn in FY16 to RM2.82bn in FY17 (+17%YoY) led by the increase in revenues of the construction segment; RM 1.7bn (+106%YoY or 62.8% of total revenue). Our forecast departed from Street’s on the account of higher recognition of progress billings especially of MRTV210.

Rising OPEX still leading to dwindling earnings. The trend divergence between the rising revenue and falling earnings is mainly attributable to persisting operating expenses (OPEX) which grew consequently from RM2.17bn in FY16 to RM2.61bn in FY17 (+20%YoY) The operating expenses (OPEX) growth is led by the project mobilizations of various projects such as the MRT2 V210 Package, Kwasa Land, PR1MA (Kajang & Brickfields) and the upcoming Damansara-Shah Alam Highway (DASH). The OPEX current level is critical as its materiality is 92.6% to revenue influences our earnings assumptions for FYE18 and FYE19.

In the midst of reviewing earnings forecasts. We are still revising MRCB’s earnings assumptions for FYE18/FYE19. With an unbilled orderbook of RM7.9bn (excluding fee based contracts of RM600m) MRCB’s outlook is positive. However, we reckon that balancing a decent orderbook figure and launching property projects in Australia and KL’s prime area along with an increasing OPEX is a difficult task. We believe that MRCB’s competitive advantage could be strengthened with the positive news of EDL’s disposal but the steepening OPEX may still be of concern.

Recommendation. Altogether, we maintain our BUY recommendation with SOP-based TP of RM 1.36 per share.

Source: MIDF Research - 1 Mar 2018