Investment Highlights

• We cut our fair value of MRCB to RM1.26 (from RM1.89), still based on a 10% discount to its RNAV, due to the dilutive effect of the rights issue and free warrants.

• MRCB has announced that it has fixed the issue price of its rights shares at RM0.79 per rights share, and the exercise price for its rights warrants at RM1.25 per rights warrant. To recall, MRCB had on 17 May 2017 proposed a renounceable rights issue of up to 2.85bil new ordinary shares together with up to 570.76mil free detachable warrants, on the basis of one rights share for every one existing MRCB share (1-for-1) and one free rights warrant for every five rights shares subscribed (1-for-5). The rights issue goes ex on 5 Oct 2017.

• The issue price represents a 20.2% discount to the theoretical ex-rights price (TERP) of MRCB shares of RM0.99 based on the 5-day VWAMP of RM1.1999 up to and including 18 Sep 2017. The exercise price represents a premium of 26.3% to the TERP of MRCB shares based on the 5-day VWAMP of RM1.1999 up to and including 18 Sep 2017, being the market day immediately preceding the price fixing date on 19 Sep 2017.

• MRCB also entered into an underwriting agreement with RHB Investment Bank, CIMB Investment Bank and CIMB Islamic Bank (joint underwriters) to underwrite up to 1.73bil rights shares together with 345.55mil rights warrants, representing approximately 60.5% of the total rights shares with rights warrants to be issued under the maximum scenario. The remaining 39.5% represents the entitlements of the EPD and Gapurna Sdn Bhd, the major shareholders of MRCB, for which they have provided written undertakings to subscribe in full for their respective entitlements.

• Under the maximum scenario, the enlarged share capital will increase to 6.82bil upon the completion of the rights issue and full exercise of the rights warrants. MRCB would be able to raise in total RM2.97bil from the rights issue and exercise of warrants under the maximum scenario.

• MRCB also announced that it had acknowledged receipt of letters of acceptance in relation to its tender bids for two projects: 1) construction and completion of elevated stations and other associated works at Cyberjaya City Centre and Putrajaya Sentral (Package S210) for Mass Rapid Transit Corporation Sdn Bhd for a contract sum of RM145.8mil; and 2) construction of Larkin Indoor Stadium, Johor Baru for Johor Land Bhd for a contract sum of RM58.9mil, with a contract duration of 18 months from the date of site possession. We expect both projects to contribute positively to future earnings.

Source: AmInvest Research - 20 Sept 2017