Malaysian Resources Corporation Berhad (MRCB) reported their earnings for the first quarter (1Q17) on 29 May 2017. MRCB recorded a higher net profit at RM10.5 mil., which saw an increase of 139% year-on-year (YoY). Macquarie Equities Research (MQ Research) said MRCB’s net profit was behind MQ Research’s consensus but its 1Q17 revenue was tracking in line with estimates, registering at RM525 mil. (+20% YoY).

Within the same report, MQ Research maintains “Outperform” on MRCB.

Event

• MRCB Corporation (MRCB) reported its 1Q17 earnings on 29 May 2017..

• Overall, results were weak - mostly related to the seasonal factors of the first quarter of each year, MQ Research believe. 1Q17 adjusted profit after tax (PAT) registered at RM10.5mn (+139% YoY), tracking behind MQ Research consensus FY17E adjusted PAT estimates at 7%/8%, respectively. 1Q17 revenue was at RM525mn (+20% YoY), tracking in-line with MQ Research/consensus estimates at 23%/26%, respectively. Net gearing went up to 94% in 1Q17 from 76% in 4Q16.

‌Impact

• Operationally, earnings before interest and tax (EBIT) was weaker in 1Q17 at RM59mn vs. RM62mn in 1Q16. The higher adjusted PAT was mainly due to lower financing cost which saw a drop of -25% (RM12mn) in 1Q17.

• Property division saw EBIT decreased by -26% YoY to RM50mn mainly due to the profit recognition of an asset disposal (NU Tower 2), which happened in 1Q16. The division's revenue was mostly driven by the property development projects anchored by Sentral Residences, Menara MRCB Putra, 9 Seputeh and Burwood.

• Construction division remains weak albeit with a slight improvement in EBIT at RM1.3mn (+10% YoY). The profit for the division was mainly driven by Bukit Jalil National Sports Comples and the ongoing projects in Johor. External orderbook currently stands at RM7bn, with outstanding orderbook of RM5.2bn.

• MQ Research believe earnings for MRCB were mostly affected by the seasonal factors and also the ongoing Bukit Jalil project, which is profitable to the construction division but loss-making to the Group as the project is paid in land swap rather than cash.

‌ Action and Recommendation

• Maintain Outperform.

Source: Macquarie Research - 30 May 2017