INVESTMENT HIGHLIGHTS

• 3MFY18 results disappointing

• Earnings still bore the brunt of OPEX

• Reviewing the TOD demand and MRCB’s niche

• Nonetheless, we maintain our BUY stance with TP of RM1.36 per share

3MFY18 results disappointing. MRCB’s 3MFY18 PATAMI of RM21.5m (+150.0%YoY) came in below expectations accounting for a dismal 10.6% and 9.6% of ours and consensus’ estimates respectively. MRCB’s revenue decreased from RM519.8m in 3MFY16 to RM427.5m in 3MFY17 (-17.5%YoY).

Earnings bore the brunt of OPEX. We have mentioned about OPEX growing for MRCB previously. Notably, OPEX shrank from RM473.41m in 3MFY17 to RM419.3m (-188.6%YoY) currently. Monitoring OPEX is important as its materiality is 98.8% to revenue consequently influences our earnings assumptions for FYE18 and FYE19. Despite the decreased of revenue, we surmise that OPEX plays a strong hand in MRCB’s reversal in earnings for 3MFY18.

Reviewing the TOD demand and MRCB’s niche. That said, we are reviewing whether transport-oriented development business model is sustainable for MRCB as the outlay investment cost to mobilize project team is high. Despite that, MRCB’s orderbook is RM4.6bn thus earnings estimates for FYE18/FYE19 is reiterated on the basis thereof as well as on-going projects such as 9 Seputeh and upcoming TRIA Phase 2.

Recommendation. We maintain our BUY recommendation with an SOP-based TP of RM1.36 per share

Source: MIDF Research - 31 May 2018