MRCB's 9MFY24 earnings met expectations but beat the streets mainly due to chunky showing from the construction division making good progress with a remaining order book of RM26b.

Meanwhile, 9MFY24 property sales of RM637.3m are on track to meet its RM800m target. We maintain our earnings but cut our TP to RM0.56 (from RM0.62) as we lower our valuation for the construction sector owing to poor tender book visibility post-lapse of MRT 3 tender.

9MFY24 core net profit of RM63.0m met our full-year forecasts at 80% but beat full-year consensus estimates at 93%, respectively.

YoY, revenue slid 31% on lower contributions from the engineering, construction, and environment division due to lower billings for the LRT3 project, as well as from the property development and investment segment, where major projects were completed in CY23 and new projects are still in their early stages. However, operating margins increased to 11% (+3.7 ppts) thanks to higher margins following certain construction projects having delayed recognitions with the completion of their final accounts.

Separately, we note that MRCB's property development segment reported losses due to lumpier handovers in 9MFY23 for the Sentral Suites completion where the year was mostly supported by unsold units there.

QoQ. 3QFY24 revenue rose by 15% but net profit declined by 83% mainly due to by higher operating expense tied similarly to the construction sector's project progress during the current period.

The key takeaways from its analyst briefing are as follows:

1. It achieved RM637.3m property sales in 9MFY24, on track to meet its internal sales target of RM800m (which is consistent with our assumption). As at end-9MFY24, its unbilled sales stood at a low of RM630.5m.
2. On its engineering, construction, and environment division, the group secured the Phase 2 Sungai Langat flood mitigation project year-to-date, valued at RM25.0m, with a targeted completion timeline of six years. Currently, the group is negotiating contracts worth RM4b- RM5b, which include the construction of five LRT3 stations and related infrastructure, the redevelopment of Stadium Shah Alam (which is currently undergoing its demolition phase), and the redevelopment of KL Sentral (expected to amount to RM1b in contract value) which would contribute in FY25.
3. At present, its order book stands at RM26b with noted key projects being: (i) Penang Airport Expansion, and (ii) Pan Borneo Package (24-km stretch),

Forecasts. Maintained.

Owing to uncertainties surrounding the re-tendering process of MRT 3, we hold a more conservative view on the long-term prospects within the construction sector. This prompts us to lower our valuations to 11x PER (from 15x PER), closely in line with the valuations of smaller cap contractors.

With our maintained 70% discount to property RNAV (higher than industry average of 50%), we derived a lower SoP-based TP of RM0.56 (from RM0.62).

We like MRCB for: (i) its prime matured lands that are close to public transportations, and (ii) involvement in high value infrastructure projects (i.e. KL Sentral Redevelopment). However, there is room for improvement in terms of project execution. Maintain MARKET PERFORM. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Source: Kenanga Research - 28 Nov 2024