Maintain BUY

* The full-year net earnings of RM40.3 million came in above ours and consensus expectations, largely driven by improved “Engineering  & Construction” (E&C) division’s contribution.

* We have revised upward our earnings forecast for FY10 and FY11 by 30% and 15% respectively, backed by strong orderbook of RM2.7 billion order book, lower material  prices and property development pick-up pace.

* We reaffirm our BUY recommendation. We are adjusting our target price to RM1.62 ex-rights after imputing the overhang effect of an enlarged share capital.

FY09 results above expectation. MRCB full-year FY09 earnings of RM40.3 million came in 24% above our expectation of RM32.6 million, contributed by improved margins from the engineering & construction division of 6%.

A turnaround performance. MRCB recorded a pre-tax profit of RM46.4 million as compared to a loss of RM42.2 million in the preceding year. The turnaround in performance was due to the improvement in margins of its engineering and construction division arising from partial recovery of material cost stability and the positive impact of its value engineering cost control efforts. Recall that the loss in the preceeding year was also due to the high finance cost of 9% and a low margin of 4% in FY09, arising from the one-off premium charged on the early settlement of a bond issued by a subsidiary.

Healthy order book that could get stronger. With a total orderbook of RM2.7 billion, MRCB is going to remain busy over the next 4-5 years in particular for its KL Sentral  property construction.  This should assure steady earnings growth over the next 4-5 years. Management indicated to add for at least RM2 billion orderbook, whereby funding will come from proceeds of the rights issue for the new land acquisition particularly in the Klang Valley, estimated at RM315 million (>60% of proceeds of the rights issue).

Reiterate BUY rating. We are revising upwards our earnings forecast for FY10 and FY11 by 30% and 15% respectively on the back of stronger contribution from the E&C and property divisions next year, especially from its KL Sentral development. We are adjusting our target price to RM1.62 ex-rights after imputing the overhang effect of an enlarged share capital as a result of the 1:2 rights issue. This is based on sum-of-parts valuation.











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