MRCB’s 3Q15 numbers fell short of expectations, hampered by the underperformance of its property segment. However, we maintain our BUY call and TP of MYR1.60 (17% upside). We expect stronger earnings in the coming quarters, given the more promising earnings visibility backed by its MYR6bn construction orderbook and MYR1.7bn unbilled property sales.

Earnings hampered by low property contribution. Malaysian Resources Corp’s (MRCB) 3Q15 core net profit of MYR5.6m brought 9M15 core profit to MYR23.1m, coming in below our and consensus stimates at less than 50% of full-year numbers. We note that 9M revenue contribution from its property division was down 11% YoY, as its Q Sentral project is now reaching the tail-end of the development and due to the lack of new launches this year amid the prolonged soft market sentiment. That said, revenue from its construction segment was up more than 50% YoY, although we note that overall EBIT margins saw some dilution due to lower margins from the construction segment.

Better outlook ahead from non-core asset disposals. We believe that earnings should start to pick up from 4Q15 onwards as new construction contracts take off. We note that 4Q earnings will also see a boost from the disposal of MRCB’s stake in the recently-completed Nu Sentral, which is expected to result in total gains of about MYR70m. In addition, its recent sale of Sooka Sentral is expected to result in net gains of MYR30m to be recognised in 1Q16. A key risk to our forecasts is a laterthan-expected earnings turnaround.

Maintain BUY. We trim our FY15 earnings estimate by 8% as we finetune our cost assumptions. Our TP for MRCB is maintained at MYR1.60, based on an unchanged 30% discount to RNAV. To reiterate, we expect FY16 operating earnings to gradually turn around as earnings from its recent construction contracts secured after the new management came on board will start to kick in, which should result in better margins. Earnings visibility should be promising, given the backing of its MYR6bnconstruction orderbook and MYR1.7bn of unbilled sales, as well as the Light Rail Transit 3 (LRT3) project delivery partner (PDP) fees. Its ability to secure the LRT3 PDP role and the Bukit Jalil land swap deal are good indicators of management’s ability to secure jobs, and these are expected to take time to translate into earnings.