INVESTMENT HIGHLIGHTS

• Earnings met expectations

• Outstanding orderbook stood at RM21.8b

• Current prospect is fundamentally positive

• Dividend of 1.75sen/share equates to 76% pay-out ratio

• Reiterate BUY call with an adjusted TP of RM0.90

Earnings met expectations. MRCB’s 12MFY18 revenue slipped - 29.2%yoy to RM1.9b from the same period last year. Consequently, net profit was recorded lower by -37.5%yoy at RM101.2m. The cumulative quantum was arrived after recording RM26.4m (-73.2%yoy) of PATAMI in 4QFY18. Altogether, the group’s 12MFY18 PATAMI accounted for 102.4% and 102.6% of ours and consensus’ estimates respectively.

Lack of income from KL Sports City project. The decline in revenue was due to the absence of income from the regeneration and redevelopment of the KL Sports City in Bukit Jalil which was completed in July 2017. Accordingly, we noted that the project represented about 41% of MRCB’s total revenue in CY17. The income from Eastern Dispersal Link (EDL) Expressway was also absence, as its toll operation was discontinued in late CY18.

Outstanding orderbook stood at RM21.8b. The group has recently won RM323m worth of contract for the construction of SUKE highway. Accordingly, the amount was added to the previous unbilled jobs to arrive at RM21.8b.

Dividend of 1.75sen/share declared. Management has proposed the payment of a first and final single tier dividend in respect of the financial year ended 31 December 2018. Subject to approval, investors can expect 1.75sen/share of dividend distribution. This equates to 76% payout ratio of the group’s FY18 earnings.

Recommendation. LRT3’s progress is expected to resume in 2HFY19. While it provides more clarity on the timeline, our concern stemmed from the downside risk to income as LRT3 job makes up about 56% of unbilled construction jobs. We will not be surprised if near term earnings are hampered given this deferment. While we have fairly expressed our concerns, we think the group’s prospect is fundamentally positive. On that note, we believe the group’s robust orderbook and healthy balance sheet will directly benefit its prospective value accretion. Hence, we maintain our BUY call with adjusted TP of RM0.90, derived from our SOP valuation.

Source: MIDF Research - 27 Feb 2019