MRCB (1651) - Malaysian Resources Corp - FY14 soars with asset sale gains
Target RM1.81 (Stock Rating: ADD)
Asset sale gains of over RM90m aside, MRCB's FY14 core net profit only made up 70% of our full-year forecast and 65% of consensus and was therefore operationally below expectations. While property numbers were strong, we had largely overestimated construction margins and did not foresee the operating losses in 4Q14. We nevertheless retain our FY15-16 EPS estimates as future years should be stronger for all segments in view of the healthy incoming property GDV and in-house construction jobs. We also introduce FY17 forecasts. We cut our target price as we update balance sheet items but it is still based on a 20% RNAV discount. Medium-term catalysts are likely job wins and investors’ preference for value plays. Maintain Add.
FY14 operationally below expectations
FY14 core net profit fell 30% short of our full-year forecast and 35% below consensus. The main reason for the deviation was lower-than-expected construction margins and the operating losses in 4Q14, which were due to an underprovision of taxes. The overall group EBIT margin of 3.7% was below our forecast of 7% for FY14 but we expect margins to stabilise higher in forecast years, driven by property development and the construction division, which should benefit more from internal works. The 2.5 sen full-year DPS was in line with expectations.
Mainly an execution year in 2015
We anticipate several key milestones in 2015, including the completion of the delayed REIT exercise for Platinum Sentral by Mar 15 (resultant net gain of up to RM220m) and a clearer funding strategy for the balance RM735m equity portion of MRCB's 70% stake in RRI Land's maiden development by mid-year. Existing property development ventures, with RM1.7bn unbilled sales (9 Seputeh, PJ Sentral and Sentral Residences), ensure steady growth for the segment. The construction order book stood at RM2.9bn, of with c.60% is internal works, suggesting smaller wins this year.
Still offers value
We expect the domestic construction sector to offer a recovery angle and likely catalysts in the form of MRT 2 and LRT 3 towards 2H15. This should mitigate the timing risks of RRI Land and weaker investor sentiment on the overall property market. The stock trades at a steep 38% discount to its RNAV.
Source: CIMB Daybreak - 24 February 2015
http://cimbresearchklse.blogspot.com
Target RM1.81 (Stock Rating: ADD)
Asset sale gains of over RM90m aside, MRCB's FY14 core net profit only made up 70% of our full-year forecast and 65% of consensus and was therefore operationally below expectations. While property numbers were strong, we had largely overestimated construction margins and did not foresee the operating losses in 4Q14. We nevertheless retain our FY15-16 EPS estimates as future years should be stronger for all segments in view of the healthy incoming property GDV and in-house construction jobs. We also introduce FY17 forecasts. We cut our target price as we update balance sheet items but it is still based on a 20% RNAV discount. Medium-term catalysts are likely job wins and investors’ preference for value plays. Maintain Add.
FY14 operationally below expectations
FY14 core net profit fell 30% short of our full-year forecast and 35% below consensus. The main reason for the deviation was lower-than-expected construction margins and the operating losses in 4Q14, which were due to an underprovision of taxes. The overall group EBIT margin of 3.7% was below our forecast of 7% for FY14 but we expect margins to stabilise higher in forecast years, driven by property development and the construction division, which should benefit more from internal works. The 2.5 sen full-year DPS was in line with expectations.
Mainly an execution year in 2015
We anticipate several key milestones in 2015, including the completion of the delayed REIT exercise for Platinum Sentral by Mar 15 (resultant net gain of up to RM220m) and a clearer funding strategy for the balance RM735m equity portion of MRCB's 70% stake in RRI Land's maiden development by mid-year. Existing property development ventures, with RM1.7bn unbilled sales (9 Seputeh, PJ Sentral and Sentral Residences), ensure steady growth for the segment. The construction order book stood at RM2.9bn, of with c.60% is internal works, suggesting smaller wins this year.
Still offers value
We expect the domestic construction sector to offer a recovery angle and likely catalysts in the form of MRT 2 and LRT 3 towards 2H15. This should mitigate the timing risks of RRI Land and weaker investor sentiment on the overall property market. The stock trades at a steep 38% discount to its RNAV.
Source: CIMB Daybreak - 24 February 2015
http://cimbresearchklse.blogspot.com
