- We reiterate our BUY call on MRCB with a lower fair value of RM2.22/share (previously RM2.30/share) on an unchanged 20% discount to its NAV. This reflects:- (i) our more conservative stance on the EDL concession’s maiden full-year contributions; (ii) disposal of Platinum Sentral; and (iii) swap deals with DMIA.

- Stripping off exceptional gains from the disposal of Platinum Sentral, 1Q15 core earnings surged c.45% YoY to RM17mil (QoQ: +6.5x). Core property EBIT rose 15% QoQ (RM53mil) despite slower property billings as margins improved 4.7ppts. Construction earnings swung back to the black with a small profit of RM2bil.

- For the upcoming quarters, we expect MRCB’s earnings to be lifted by the maiden contributions from its newlyminted associate, MRCB-Quill REIT, which mitigates any uncertainties arising from EDL’s numbers. While we estimate the latter to have contributed substantially to the infrastructure divisions’ EBIT of RM17mil in 1Q15, its full-year impact could still be fluid owing to associated interest and depreciation charges.

- More importantly, MRCB’s transition into a propertycentric group is ongoing. Amid a change in management last year, new property sales jumped 2.7x to ~RM1.1bil in FY14.

- For FY15F, management is targeting to maintain the new sales momentum at c.RM1bil despite a more challenging property market. 1Q15 sales were RM250mil (1Q14: RM60mil). Key projects that contributed during the quarter under review were 9 Seputeh, Sentral Residences, and Burwood.

- MRCB has lined up ~RM1.3bil worth of pre-sales from projects this year. This includes Phase 2 of 9 Seputeh (RM200mil), Semarak City (RM400mil), The Grid @ Jln. Kia Peng (RM387mil), and 3 Residences in Kajang (RM234mil).

- MRCB is also gunning for specialised construction jobs that leverage on its strengths. Near-term job prospects include the LRT 3; the group is reportedly teaming up with George Kent in its bid. Current outstanding order book is ~RM1bil.

- There could upside risk to our earnings, as we have yet to account for:- (i) a 41% stake in Quill Capita Management (QCM); and (ii) the recently acquired German Embassy land (GDV: ~RM1.3bil).

- MRCB’s net gearing is set to improve to 1.4x in FY15F (FY14: 1.5x). Moreover, the future asset injections into MRCB-Quill REIT and recurring income should provide more headroom for MRCB to deleverage.

Source: AmeSecurities Research - 22 May 2015