MRCB: What property slowdown?

Malaysian Resources Corp Bhd (Nov 1: RM1.95)
Reiterate buy, with target price of RM3.25:
Despite concerns over a slowing property market, MRCB's two key launches — Q Sentral and Sentral Residences — were runaway successes with RM1.3 billion sales. Q Sentral strata offices (gross development value or GDV of RM1.2 billion) is 80% sold at RM1,350 psf average sale price (ASP) vs RM1,250 psf expectation. The first tower of Sentral Residences (GDV RM1.4 billion, ASP RM1,100 psf), which is next to St Regis (ASP RM2,200 psf), is 70% sold.

We believe the strong property sales at KL Sentral are due to its maturing franchise there, and established partners and clients such as Quill, CapitaLand and Daol.

With new launches next year in Batu Ferringhi (GDV RM185 million), Jalan Kia Peng (GDV RM324 million) and Setapak (RM2 billion), property will contribute 51% of FY12F earnings before interest and tax vs 35% in FY10.

MRCB's RM2.6 billion order book ensures earnings visibility over next two years. It is one of 11 contractors prequalified for mass rapid transit elevated civil works and also a project delivery partner for the River of Life Project with Ekovest.

After winning the RM47 million Sungai Pahang rehabilitation project, we expect it to secure more environmental-related jobs, which carry high 15% pre-tax margins.

It is also negotiating for several projects with the government possibly on a private finance initiative basis. Our RM800 million per annum new order win targets for FY12F to FY13F are more conservative than MRCB's RM1 billion guidance.

Currently trading at mean levels (vs peak of +2 standard deviation). MRCB is attractively priced for exposure to a growing GLC-linked developer with improving earnings delivery and visible share price catalysts.

Our target price is based on sum-of-parts valuation. Other key catalysts are formal participation in the Rubber Research Institute Malaysia land and later launching a RM2.5 billion real estate investment trust. — Hwang DBS Vickers Research

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