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MRCB (Inter-Pacific Research) neutral; RM1.72

Below expectation

Highlights:


  • Neutral: MRCB 1QFY10 revenue and net profit fell short of our full year forecast by 18.2% and 18.1% respectively and consensus of 16.6% and 16.2% respectively. Nonetheless with their current outstanding order book of about RM4bn with RM1.24bn being external on-going projects which is expected to be completed within 2 years, we believe MRCB is well in line to achieve our FY10 forecast. We recommend neutral and our target price is RM1.72 using RNAV.


  • 1QFY10 top line rose by 24.3%y/y to RM189.7mn: Improvement was mainly from: (1) E&C segment which grew by 84.2%y/y driven by the recognition of ongoing E&C works on Lot G, Lot 348, Lot A, Permai Hospital, Salak South transmission works; (2) infrastructure and environmental work segment which grew by 7.5% y/y driven by contracts revenue from Kuala Sg Pahang & Sg Kuantan rehabilitation project; and (3) property development segment which grew by 40.6% y/y steered by Lot G development in KL Sentral which is a JV between MRCB and Aseana Properties Limited (UK).


  • Duke Highway frustration: To recap, DUKE is a MRCB JV with Wira Kristal Sdn Bhd at an equity stake of 30%. However the toll concession is yet to capture sufficient traffic volume to register profit. Losses for the period stands at RM2.1mn, accounting for 75% of losses registered in 1QFY10 share of results of jointly controlled entities and associates which is 159% higher compared to corresponding quarter last year.


  • MRCB current outstanding order-book is at RM3.98bn: Estimated 36% of MRCB’s order book is internal construction works for KL Sentral developments i.e. Lot A, Lot 348, Lot G etc. In terms of order book replenishment, MRCB is still one of the main contenders for the RM7bn LRT extension/upgrade as well as some environmental projects within the range of RM200-300mn following their expertise and track record in this segment. We could expect positive surprises from the 10 Malaysia Plan next month regarding awards of government construction projects as well as redevelopment of government land.


  • Proceeds from rights issue not utilized: MRCB had allocated RM315mn from RM510.4mn raised from rights issue for Investment in prime land for property development. Bank balance and deposit currently stands at RM1.16bn. We believe MRCB’s focus will be to replenish their depleting land bank in view of the completion of KL Sentral development in about 5 years. We believe MRCB will be engaging their funds in larger land bank which offers higher GDV and development life span.
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