Highlights

We attended MRCB’s briefing on Project MX-1.

The mix development project is expected to have a GDV of RM8bn spread over 12 years. The land is located at prime area in Sungai Buloh where two MRT stations (i.e. Kota Damansara and Taman Industri Sungai Buloh) will be built in the township.

The proposed Kwasa Damansara Township is an integrated commercial (60%) and residential (40%) development, with a plot ratio of 1 to 3.5. This township will consist of retail, office, civic centre, cafes, apartment and townhouses.

Recall that MRCB will pay RM816.6m for 70% stake in Kwasa Development Sdn Bhd (KDSB). KDSB is a special purpose vehicle to undertake the mixed development. KDSB shall bear all the Conversion and Lease Extension, the operational cost and the preparation and finalization of the development, building and layout plans and obtaining all the necessary approvals from the relevant authority. Any additional cost beyond RM816.16m shall be bear by Kwasa Land.

Management is confidence of achieving 25% PAT of the proposed Kwasa Damansara Township key covenants over the period of 15 years from the unconditional date. This is due to the commitment placed by MRCB in enhancing the value of the land by creating a branding exercise such as building malls, creating open landscapes and other infrastructures.

RM735m (90%) of the subscription payment will be paid upon unconditional date which will be within 12 months of the shareholders agreement failing which it shall be extended for a further period of 12 months. The management has indicated that there are no issues in funding the mix development project as the company has capacity for additional RM700m borrowing and it may undertake a series of disposal of investment properties (Shell Tower, Sooka Sentral and few others).

The company has not firm up on the first launch date and indicated that the commencement of the construction would only start in mid-2016. Thus, any significant contributions would only start in FY17 and beyond.

Risks

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

Forecasts

Maintain

Rating

BUY

We are maintaining our view that the new management will be able to turnaround MRCB’s operations and positive on the de-gearing exercise. Hence, we maintain our long term BUY call giving its strategic landbank development

Valuation

Maintain TP at RM1.97 based on SOP valuation (see Figure #1) as no changes in earnings estimate in FY 14 and FY 15.

Source: Hong Leong Investment Bank Research - 28 Aug 2014