Wednesday 23 May 2012

MRCB (FV RM2.38 - TRADING BUY) 1QFY12 Results Review: Not So Good


MRCB’s annualized 1QFY12 results were 21% below our estimates but largely in line with consensus.  Although revenue was in line with our forecast,  earnings were weaker than expected due to higher than expected MI charges. Subsequently, we are revising down our FY12 and FY13 numbers by 24% and 12% respectively on incorporation of  higher MI charges and lower margins. We maintain our Trading Buy call, but at a lower FV of RM2.38 vs RM2.50 previously following our earnings revision and adjustment in RNAV.  Our new FV is based on a 20% discount to the SOP of the stock’s RNAV. 

Below expectation.  MRCB’s net profit of RM22.2m for 1QFY12 accounted for about 19.8% and 24.4% of our and consensus FY12 net profit forecasts respectively. The under-performance was due to higher than expected MI charges arising from the recognition of further progress billings from the property developments the company undertook on a JV basis. We expect MRCB’s future earnings to be dragged down by start-up losses from the Eastern Dispersal Link (EDL) toll concession. Allthough  EDL was open to the traffic in early April, the dissatisfaction over the toll charges led to MRCB having to revert to the Government and negotiate on the toll collection, which we think should be concluded soon.   

Segmental performance. Owing to the strong progress billing from its on-going developments in KL Sentral, revenue at MRCB’s property division soared more than 200% y-o-y while the division’s EBIT ballooned 2.2x y-o-y. Its construction division saw flat y-o-y revenue growth of less than 0.5% while EBIT sank 47.4% y-o-y due to weaker margins arising from higher material prices and tight labour supply. Overall, MRCB’s total revenue for 1QFY12 was up by 48.4% y-o-y, attributed to strong growth from its property division despite the flat performance of its construction division. PBT jumped 48.1% y-o-y in line with higher revenue, but net profit was up by only 2.6%, attributed to higher MI charges and tax expenses given that MRCB recorded a positive tax expense in 1QFY11.

Maintain Trading Buy. We  are  revising  down our FY12 and FY13 estimates by 24% and 12% respectively after including higher MI charges and lower margins assumptions, especially for the group’s construction division. We maintain our Trading Buy recommendation on MRCB,  but at a  lower FV of RM2.38 from RM2.50 previously, following our earnings revision and adjustment in our RNAV valuation.  Our FV is based on 20% discount to the SOP of the stock’s RNAV valuation.

Source: OSK 

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