MRCB - 4Q12 within expectations

Period  4Q12/12M12

Actual vs. Expectations  FY12 core net profit of RM63m came in within our expectations but was way below the consensus, accounting 105% of our FY12 full years forecast and 76% of the consensus respectively. The results were mainly supported by its property development earnings while the construction earnings were still a laggard due to delays and additional cost provisioning.

Dividends  As expected, no dividend was declared during the period.

Key Result Highlights  FY12 core net profit fell 19% due to slower revenue recognition for its construction segment (-37%). However, the earnings were supported by the increase in its property division earnings by 83%. Property accounted for c.70% of its normalised operating profit (after excluding a RM2.8m exceptional loss).

 QoQ, the revenue advanced by 4% due to the 36% increase in the property contribution. However, this was mitigated by a significant drop in the infrastructure & environmental segment due to the slower completion of works in progress. The core net profit increased by 60% due to the better margin contribution from property as compared to the construction segment. MRCB made a provision of RM25m during the quarter due to additional costs incurred for a completed project, i.e. Permai Jaya Hospital, which caused the division to suffer a loss of RM30m.

 YoY, its construction segment remained as the laggard as its revenue dropped by 60% while its operating results went into a deeper loss. We understand that the progress for its ongoing LRT project is slow caused by delays in land matters. However, we expect the division to contribute positively to FY13 earnings as the construction progress reaches the peak of the S-curve time frame.

Outlook  The order book stands at RM890m (external contracts) for the next 2 years. There could be some surprises in the near term for its construction order book replenishment. Management guided that this could be in the form of an ETP or PPP based project.

 Management is very optimistic that its EDL issue will be resolved after the general election.

Forecasts  We have tweaked our FY13 earnings estimate by 8% to RM72m as we projected a higher contribution from its property business segment.

Rating    MAINTAIN OUTPERFORM.

 We expect the share price to react positively on the potential additional order book replenishment highlighted above in the near term.

Valuation  We are keeping our Target Price of RM1.92 unchanged at this juncture. Our Target Price is based on a RNAV valuation.

Risks  Prolonged negotiation on the EDL take-over price.

Source: Kenanga