MRC: Earnings Underperform, Strategic Cost Controls and Robust Order Book Point to Future Recovery

A recent investment bank research report indicates that a key company’s core profit for FY25 significantly
underperformed expectations, recording MYR24.7 million, a 61% year-on-year decline. This figure fell
substantially short of both the analyst’s and the Street’s full-year initial profit projections,
accounting for only 59% and 76% respectively. The negative deviation was primarily attributed to overly
optimistic construction progress billings.

Performance Review

The construction division’s Earnings Before Interest and Taxes (EBIT) experienced a 29% year-on-year
decline in FY25. This was largely due to the Light Rail Transit 3 (LRT3) project, which, while
nearing 98.5% financial completion by end-December 2025, still has five reinstated stations in
the design phase. Any potential liquidated ascertained damages (LADs) for the LRT3 project are
expected to be mitigated by claims from downstream contractors.

In contrast, the property division showed signs of improvement, reporting a narrower loss before
interest and tax of MYR9.7 million in FY25, a significant reduction from the MYR17.6 million
operating loss in FY24. This improvement was mainly driven by impairment reversals resulting from
changes in development plans and the write-back of cost provisions that were no longer required.

Future Outlook and Investment Strategy

The company’s unbilled order book stood at a robust MYR5.7 billion as of end-4Q25, providing
approximately three years of earnings visibility. Prospective job opportunities include the
redevelopment of KL Sentral (estimated at MYR1 billion), pre-qualified tenders for flood
mitigation, road, and sewage projects, and a substantial MYR8.4 billion tender book encompassing
Package 3 of the Penang Airport expansion and system works for the Penang Light Rail Transit.

For FY26, the property sales target is set at MYR900 million, compared to MYR927 million achieved
in FY25. The company also plans to launch MYR2.2 billion worth of projects domestically in FY26,
consistent with the previous year’s launch value.

Following a recalibration of construction project progress billings, particularly for the
reinstated LRT3 stations, and other housekeeping adjustments, the investment bank has revised
down its FY26-27F earnings estimates by 14% and 12% respectively. A new FY28F earnings forecast
has been introduced, assuming a MYR1.5 billion job replenishment rate.

The investment bank maintains a BUY recommendation, revising the target price to
MYR0.57 (from MYR0.67), which incorporates a 4% ESG premium. The valuation is considered
undemanding, trading at 0.3x FY26F P/BV, which is one standard deviation below its historical
5-year mean P/BV. Potential rerating catalysts include the company’s participation in the Penang
Light Rail Transit and the materialization of a development project in Makkah with the Saudi
Public Investment Fund. A key downside risk identified is a slowdown in the property market.