Investment Highlights

We maintain our BUY call on MRCB with an unchanged fair value of RM1.89, based on a 10% discount to its RNAV. We make no changes to our earnings forecasts, pending the finalisation of the issue price.

We attended MRCB’s analysts briefing on its proposed rights issue and free detachable warrants announced yesterday.

Management reiterated that the bulk of the proceeds (RM975mil) will be utilised to finance the refurbishing, renovating and upgrading of the National Sports Complex project in Bukit Jalil. We understand that the project, which commenced in January 2016, is 90% completed. The project is on schedule, with works on the facilities to be completed and handed over to the government for the upcoming SEA Games 2017.

Management also highlighted that a major portion of the proceeds will be utilised to repay the group’s borrowings. Even under the minimum scenario, MRCB’s net gearing will be reduced to 0.01x from 0.73x as at end-FY16. We believe the much stronger balance sheet would allow MRCB to undertake more projects that it has it its pipeline currently. Moving forward, we do not discount the possibility of the group gearing up again when the necessity arises, but with a much more manageable gearing level that it had previously.

As for its role in Bandar Malaysia, MRCB is still committed to the MoU it signed with the owner of the land in early 2017 to develop the transportation hub at the site, at the land size of 60 acres. However, we understand that the project is still at a very preliminary stage, and may take a few more years to take off the ground and be completed. The planning of the station can only be finalised once the operator and planning for the railway has been finalised

Overall, we understand the major objective of the capital raising is to strengthen its balance sheet and secure funding to undertake its future projects. Although the EPS may be diluted in the short term, we believe the proposed corporate exercise will have a positive longterm impact to the company.

Source: AmInvest Research - 19 May 2017