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, as we have imputed the potential future contribution from the proposed development in our RNAV calculation.

• MRCB’s 85%-owned Rukun Juang Sdn Bhd (RJSB), Tanjung Wibawa Sdn Bhd (TWSB), a wholly-owned subsidiary of the EPF, and Bukit Jalil Property Sdn Bhd (Bukit Jalil Sentral) had on 31 May 2017 entered into a subscription and shareholders’ agreement of which: 1) RJSB and TWSB will co-invest in a special purpose company, namely Bukit Jalil Sentral, to jointly developing the lands; and 2) the proposed disposal by RJSB of the lands to the JV co for an aggregated consideration of up to RM1.43bil (RM430 psf). RJSB and TWSB will subscribe for new ordinary shares and new redeemable preference shares – class A in the JV co.

• In turn, the JV co shall appoint a subsidiary of MRCB to be the management contractor for the design and construction of the future development to be carried out on the lands, subject to a management fee. RJSB will then procure the management contractor to subscribe for 1,000 new redeemable preference shares – class B (RPSB) in JV Co at an issue price of RM1.00 per RPS-B

• The lands are 3 parcels of leasehold land within the Bukit Jalil area located on the north of the Bukit Jalil National Sports Complex, with a total land size of 76.14 acres, with a 1:6.5 plot ratio. The lands are proposed to be developed as an integrated development comprising commercial and residential properties, including service apartments, shop offices, office towers, retail malls and a hotel, with a total GDV of RM21bil. The development is expected to commence in 2019, with a completion target of 2038.

• We are positive on the proposed JV. It would allow MRCB to carry out the large-scale development with the support and credibility of the EPF. It will also reduce MRCB’s burden of having to finance the entire project by itself, and free up its cash to allow it to undertake other development projects it has in its stable. Furthermore, MRCB will still be able to enjoy the future profit from the development from its effective 17% stake in the JV co, and benefit from a steady income stream in the form of management contractor fees arising from the management contractor agreement.

Source: AmInvest Research - 1 Jun 2017