Better outlook for MRCB after weaker FY16

The land is located within the locality of Jalan Putra, Kuala Lumpur, and is approximately four kilometres to the north of KL city centre. Of the three parcels of land, only one parcel measuring 17,988.92 sq m has a freehold tenure

KUALA LUMPUR: CIMB Equities Research expects a better outlook for Malaysian Resources Corporation Bhd (MRCB) after a weaker FY16 where core net profit was below consensus.

It had Tuesday retained its FY17-18F EPS forecasts and also introduced its FY19F numbers. 

“Our target price is raised (from RM1.53 to RM1.63) as we revise realised net asset value (RNAV) to reflect the improved net gearing of 0.73 times (still pegged to a 20% RNAV discount). 

“MRCB’s medium-term catalysts remain deal-driven, on top of likely domestic contract wins. Also, potential renewed developments on the MoU to explore opportunities for a transport oriented development (TOD) in Bandar Malaysia’s phase 1 could be positive for the stock. Downside risks are weaker property sales and margins,” it said.

Commenting on the FY16 results, it said core net profit made up 30% of its and consensus’s full-year estimates. 

Despite asset sale gains largely from Sooka Sentral and Menara Shell, core earnings were below expectations due to a depressed construction EBIT margin of 1% vs. the research house’s full-year target of 5%. 

The property segment’s core EBIT margin of 17% was decent given the tough market.

Construction earnings were dragged down by variation order claims which could be recovered in FY17. Full-year DPS of 2.75 sen was below its three sen forecast.

“The outstanding order book stood at RM5.4bil. Among the highlights of the results briefing was management gunning for RM8.7bil worth of jobs to tender which, in our view, may include other domestic civil infrastructure jobs in addition to potential new river rehabilitation contracts.

MRCB is now qualified to participate in Bumiputera tenders, as the completion of its 20% private placement brought its Bumiputera shareholding to more than 35%. Management expects MRCB’s construction segment margin to be 7%-8% in FY17.

“Despite a generally tough property market in the medium term, management is targeting an optimistic RM1.2bil total property sales for 2017,” it said. 

CIMB Research said MRCB’s property developments slated for launch this year have a combined GDV of RM2.4bil, with most (RM1.4bil) coming from Sentral Suites. 

MRCB initiated the project’s soft launch in 3Q16, where bookings to-date for Tower 1 stands at 80%. 

The group has also signed sale-and-purchase agreements (SPA) for 300 of the 600 units in Tower 3.

CIMB Research said the next property to be disposed of is likely to be the Celcom Tower.

Management aims for the sale to be done as soon as the building is completed, given that it would immediately have a 100% occupancy rate. Although construction has been completed, there are still outstanding interior design changes. 

After more than four months, talks on the potential disposal of the Eastern Dispersal Link (EDL) remain ongoing, though there are few details on the outcome of the indications of interest from two parties.