We believe MRCB’s earnings turnaround should be more visible in 2H as progress billings from 9 Seputeh pick up, while earnings from LRT3 PDP fees and new construction contracts kick in. Maintain BUY and MYR1.60 TP (32% upside). Earnings visibility is underpinned by its MYR4.3bn construction orderbook and MYR1.6bn unbilled property sales.

Earnings momentum to pick up. We expect Malaysian Resources Corp’s (MRCB) earnings to gradually turnaround from mid-FY16. While earnings from the property development division may be slow, the construction division will likely see stronger earnings from newer contracts and the kicking in of light rail transit 3 (LRT3) project delivery partner (PDP) fees from June onwards. Meanwhile, the KL Sports City deal is on track, and works have already started since January.

We expect MYR700m sales in 2016 vs management’s MYR1bn target. New launches in FY16 include The Grid (next to MRT 2 station), 3 Residences Kajang and Semarak City. Forecasts. We lower our FY16-17 earnings forecasts by 10-12% as the substructure works for 9 Seputeh would take a longer period given the scale. Unbilled sales and construction orderbook stand at MYR1.6bn and MYR4.3bn (excluding KL Sports City) respectively. Maintain BUY. Our MYR1.60 TP is based on a 30% discount to RNAV. Key risks to our earnings are delay in projects and worse-than-expected market conditions.

4Q15 results miss expectations. 4Q core numbers were affected by the slow progress billings, a slight delay in construction works, and upfront cost incurred to negotiate future construction contracts. Headline profit was, however, skewed by the completion of the disposal of Nu Sentral (MYR70m), and the reversal of deferred tax arising from the re-assessment of the government interim payment received in respect of Eastern Dispersal Link (EDL). New property sales achieved MYR597m vs MYR1.08bn in 2014.

SWOT Analysis

Source: RHB Research - 23 Feb 2016