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MRCB (OSK Research) buy; target price RM1.75.

Getting There

Although MRCB’s 1QFY10 net profit accounted for only 13.7% and 17.6% of our and consensus full-year forecasts for FY10, we view the results as being in line with our estimates as we see strong earnings momentum going forward. Revenue in 1QFY10 leapt 24.3% y-o-y while the reported net profit of RM9.8m was significantly higher yo-y against the marginal net profit of RM0.153m reported in 1QFY09. We maintain our forecast and TRADING BUY recommendation at an unchanged TP of RM1.75 based on SOP valuation. We see the positive outcome after the tabling of the 10MP next month as a potential catalyst for the share price.

Largely in line. Despite its 1QFY10 net profit only making up 13.7% and 17.6% of our and consensus full year net profit forecast for FY10, we view the results as being largely in line with our expectation as we see strong earnings momentum from higher revenue recognition in its E&C and property divisions. This will be supported by the higher progress billing from its ongoing development projects in KL Sentral as the construction on the projects advance. Net profit jumped significantly y-o-y attributed to higher revenue as well as margin improvements as EBIT margin increased from 9.3% in 1QFY09 to 13.2% in 1QFY10, supported by lower raw material prices. As expected, revenue and net profit were down q-o-q given that 1Q is typically the group’s weakest quarter.

Improvement across all divisions. Revenue jumped 24.3% y-o-y, attributed to higher revenue contribution across all divisions, particularly the E&C and property divisions, which saw 84% and 132% y-o-y increases respectively, which we believe was largely attributed to on-going developments at KL Sentral. The E&C division also logged in higher revenue from its two ongoing construction projects in Johor, namely the EDL Highway and Permai  Psychiatric Hospital. The huge improvement in the property division was mainly attributed to the development of Lot G in KL Sentral amid improving sentiment in the property market.

Maintain TRADING BUY. We maintain our forecast and TRADING BUY recommendation at an unchanged TP of RM1.75 based on SOP valuation. Other than the earnings improvements, we believe the share price’s upward rerating catalyst may be in the form of positive outcome from the tabling of the 10MP next month, particularly with regard to the development of federal land. We would like to reiterate our view that with EPF currently holding a 41.6% stake in MRCB, it is highly likely for MRCB to be the EPF’s main partner in developing the RRIM land in Sungai Buloh, as announced when the NEM was unveiled recently.
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