MRCB - 4QFY12 numbers hampered by provisions HOLD

- MRCB recorded losses of about RM3mil for 4QFY12 which brings its FY12 earnings to RM60mil (-36% YoY) despite recording a slightly higher turnover (+4% YoY) to RM1.3bil. This came below our expectations, underperforming by 25%. MRCB has declared a first and final dividend of 2 sen/share for the quarter.

- The losses can be attributable to provisions made at the construction division – without recognition of the corresponding potential VO claims – which had resulted in operating losses amounting to RM25.6mil for the year. We are putting our estimates for FY13F and FY14F under review.

- On the other hand, the property division continued to be the key performer, whereby earnings were mainly driven by progress billings from its KL Sentral projects that include the recently-launched Sentral Residences. The group also recognised full-year rental income from Platinum Sentral.

- Going forward, we are quite excited by the proposed share-swap deal with Gapurna. The key highlight from this deal is the injection of 33 acresof prime Klang Valley land (PJ, Old Klang Road, and Subang) for an average pricing of RM324psf, which we deem to be fair given all approvals are in hand and come with a generous plot ratio of 4x-6x.

- There will be further upside as there is FROF and call option on the remaining landbank within the Klang Valley – circa 36acres – held by Nusa Gapurna.

- The injection of the landbank also means an increase in order book for MRCB’s construction arm by RM3.6bil given the bulk of this value is in-house property job. This should bring MRCB’s order book to almost RM5bil. And there could be an additional RM4.3bil worth of jobs should the DO is obtained for two jobs – National Film Dept and Lot 1&2 in PJ.

- While the concerns mainly centres on potential massive dilution – 29% to 31% increase in share capital – this is somewhat compensated by the immediate development potential of Gapurna’s prime landbank. Further to that, we understand Gapurna is in advanced talks for few more enbloc sales at PJ Sentral. Based on its deal making capabilities, this is probable.

- We reaffirm our HOLD recommendation on Malaysian Resources Corporation (MRCB) with our fair value currently placed under review. MRCB is currently trading at an about 20x its FY13F earnings, which is at the low end of its PE band. Nonetheless, we believe the stock will trade sideways in the near term given the election risks.

Source: AmeSecurities