KEY INVESTMENT HIGHLIGHTS

• MRCB booked RM372.7m revenue in 3QFY19, -43.8%yoy lower than the same period last year

• For construction, revenue in 3QFY19 slipped further by - 22.5%yoy to RM137.4m

• The property segment reported RM215m (-54.2%yoy) revenue in 2QFY19, bringing the YTD amount to RM371.4m (-57.9%yoy)

• FY19F/20F estimates cut by -13.2% and -2.8%.

• Maintain BUY with a new TP of RM0.84

MRCB booked RM372.7m revenue in 3QFY19, -43.8%yoy lower than the same period last year. Accordingly, it earned a minimal RM2.5m PATAMI in the quarter bringing earnings to a cumulative amount of RM17.7m for 9MFY19. The latter constitutes only 23.8% and 22.7% of our and consensus full year estimates. Bulk of the 9MFY19 earnings came from a gain on disposal of RM55m One IFC Sdn Bhd in 2QFY19.

For construction, revenue in 3QFY19 slipped further by - 22.5%yoy, to RM137.4m. The billings were largely generated from MRT2, DASH, SUKE and TNB HQ campus projects, to name a few. LRT3 progress remained sluggish, with only RM1.2m profit generated in 9MFY19 (vs RM20.7m in 9MFY18). Certain projects still hit a snag due to legal proceedings, which warranted further prudent expensing in the period. Consequently, we saw the segment core EBIT came in lower by - 92.7%yoy to RM3.3m for 9MFY19.

The property segment reported RM215m (-54.2%yoy) revenue in 2QFY19, bringing the YTD amount to RM371.4m (-57.9%yoy). During the 9MFY19 period, core EBIT declined at slower rate of - 21.4%yoy to RM69.8m, thanks to a better margin of 18.8% (vs 10.1% 9MFY18). Going ahead, the segment could see a stronger sales flow following completion of SPA on some of its completed projects namely VIVO in Seputeh and Kalista Park Homes in Bukit Rahman Putra. MRCB’s unbilled sales stood at RM1.7b as of 3QFY19.

Earnings revision. We cut our net earnings forecasts, due to the lethargic performance year-to-date. Our forecasts now are moderated by the still subdued environment in property market and lower than expected contribution from high-value projects. These led us to trim our FY19F/20F estimates by -45%/-35% respectively.

Recommendation. MRCB is well covered by strong outstanding orders of RM20.9b. This, coupled with a strong balance sheet, led us to believe its prospect will remain resilient to form a strong base for future value accretion. MRCB having secured the highest orderbook in the industry could be perceived as a comforting factor to investors, whereby long-term sustainability continues to be a major concern. Our SOP driven TP is adjusted to RM0.84, implying 40x PE (close to its 2-year average) to FY20F EPS. We deem the valuation is fair, hence the BUY call.

Source: MIDF Research - 22 Nov 2019