News

MRCB together with Nusa-Gapurna has entered into a settlement agreement with PKNS to resolve all disputes for the acquisition of PJ Sentral land. The exercise is expected to be completed by 3QCY14.

In a separate announcement, MRCB will acquire the remaining 40% stake in Excellent Bonanza S/B from Aseana Properties Ltd for RM16.96m.

Highlights

Huge boost… The amicable solution reached to settle the dispute for PJ Sentral land is a positive development for MRCB. PJ Sentral is 70% owned by Nusa-Gapurna while the balance 30% by PKNS.

Previously, MRCB only has Lot 8 of the overall PJ Sentral Garden City development which spans 2.06 acres with a GDV of RM427m whereby the entire commercial building will be leased to Axiata. The latest PJ Sentral agreement refers to Lot 12 which spans 9.85 acres with a GDV of RM2.55bn. Two office towers have already been sold en bloc to MBSB and MyIPO for RM239.2m and RM250m respectively.

Good for the long term… The acquisition of 70% stake in PJ Sentral will see the issuance of an additional 108.8m new MRCB shares and 31.1m new MRCB warrants. Hence, increasing the existing 1.65bn share base by 6.6% to 1.76bn shares. Meanwhile, PKNS’ 30% stake will be acquired for RM85.3m cash. Although there will be near term earnings dilution, we are POSITIVE on the longer term prospects as it puts MRCB on a stronger footing for Phase 2 of PJ Sentral development which spans 28 acres with GDV of RM7bn.

Bonanza… Bonanza is the property management company for Nu Towers on Lot G, Parcel C of KL Sentral beside the newly built NuSentral Mall. It has 767,335 sq ft and is looking for anchor tenants.

Risks

Execution risk; Regulatory and political risk; Rising raw material prices; and Unexpected downturn in the construction and property cycle.

Forecasts

Unchanged, pending conclusion of the deal.

Rating

BUY

We remain optimistic that the new management will be able to turnaround MRCB’s operations and positive on the degearing exercise. Hence, we maintain our long term BUY call.

Positives: (1) Success in acquiring PJ Sentral land; (2) New construction contract wins; (3) Acquiring strategic land banks

Negatives: (1) Concerns over projects execution and property take-up rates; (3) Delays by the Government on EDL; (4) High net gearing levels; (5) Short-term earnings dilution arising from share swap with Nusa Gapurna.

Valuation

Target Price maintained at RM2.02 based on Sum-of-Parts valuation (see Figure #1).

Source:Hong Leong Investment Bank Research - 23 Jun 2014