INVESTMENT HIGHLIGHTS

• Earnings missed expectations

• Property Development and Investment (PDI) revenue reported a drop by -61.4%yoy

• Outstanding orderbook stood at RM21.4b

• Current prospect seen fundamentally positive

• Reiterate BUY call with an adjusted TP of RM1.02

Missed expectations. MRCB’s 1QFY19 PATAMI formed 3% and 3.6% of our and consensus yearly estimates respectively. Revenue for the quarter was at RM234.1m, a drop of -45.3%yoy from last year. Construction and property remained key contributors, with both covering 93.1% of the group’s external revenue.

Property Development and Investment (PDI) revenue declined by -61.4%yoy to RM85.1m in 1QFY19. Key factor leading to the decline was the deferment of sales income, given the pending completion of SPA. Moreover, newer property projects were evidently still at early stage, making income recognition minimal. According to management, bulk of the sales secured will likely be recognized in the 3QFY19 which takes into account the timeline on SPA completion. Year-to-date, RM75m worth of sales were recorded with unbilled amount stood at RM1.6b as of 1QFY19. The unbilled figure provides 1.5x cover to its FY18 PDI revenue.

Engineering, Conctruction & Environment (ECE) revenue contracted -30.5%yoy to RM132.7m. In 1QFY19, revenue was largely supported by the progress works for MRT Line 2 Package V210, Damansara-Shah Alam Highway (DASH) Package CB2, and TNB HQ projects. Despite the drop, we noted that operating profit increased by +4.0%yoy to RM16.7m. At JV level, we saw minimal contribution from LRT3, recording only RM0.5m in PAT vs RM9.0m in 1QFY18. This was attributable to an extended deferment of progress billings due to a recent change in contractual agreement. In the near term, MRCB is likely to see better contributions from LRT3 as progress, set to ramp in 2HFY19. As of 1QFY19, MRCB has an outstanding orderbook worth RM21.4b. The figure was arguably the highest in the industry and shall keep it busy beyond the industry’s average visibility.

Source: MIDF Research - 31 May 2019