MRCB - 2Q12 results below expectations

Period    2Q12/1H12

Actual vs.  Expectations

 2Q12 results came in below ours and the consensus expectations. The 1H12 net profit of RM27m only made up 25% and 34% of ours and the consensus’ full year FY12 forecasts of RM174m and RM80m respectively.

Dividends  No dividend was declared during the period as expected.

Key Result Highlights

 The 1H12 net profit of RM27m came in lower by 33% (YoY) due to higher interest expenses for the EDL highway project. MRCB has accounted for c.RM21m in interest expense during the period for the project’s borrowings. The 1H12 revenue was higher by 47% due to the strong growth for its property and environmental division by 82% and 90% respectively. 

 QoQ, the net profit plunged by 77% despite the higher revenue of 4%. The net profit was dragged down by the higher finance cost for its Eastern Dispersal Link (EDL) project. The finance cost for EDL is estimated at RM7m per month (RM84m a year).  

 YoY, the revenue improved by 45% due to higher progress billing for its ongoing property development projects in KL Sentral and its environmental project. However, the net profit dropped by 73% due to the higher finance cost recognised for the EDL project.

Outlook   MRCB is in the midst of negotiation to sell out the EDL highway to the government. As an interim solution, the government will pay a sum of “compensation” to MRCB to recover its operating and finance expenses. However, the “compensation” sum will be recognised in the balance sheet rather than in its income statement. We expect this will negatively affect its FY12 earnings via heavy finance cost of c. 84m.    

Forecasts   We have reduced our FY12-13 earnings by 61% and 47% respectively as we have removed EDL’s construction earnings and recurring income from our forecasts. 

Rating  MAINTAIN OUTPERFORM

 We are maintaining our OUTPERFORM recommendation as we believe that MRCB stands a higher chance to secure more government-related projects in the near term. 

Valuation    We have revised our target price substantially lower to RM2.07 from RM2.71 based on RNAV valuation.

Risks   Prolonged status quo on its EDL’s non-tolling status.   

Source: Kenanga