News

• Acquires German Embassy land. MRCB announced that it has entered into a Sale & Purchase Agreement (SPA) with The Government of Germany to acquire a parcel of land at Jln Kia Peng, KL measuring 1.87 acres for RM259.2m.

Comments

• Prime location… The said land previously housed the official residence of the German ambassador to Malaysia until June 2013. It is bound by Jln Kia Peng and Jln Binjai. Apart from that, the land is adjacent to various luxury condos within the city such as Four Seasons, Troika, Binjai on the Park, Pavillion Banyan Tree and the upcoming world’s first Harrods Hotel.

• …but price on the high side. The acquisition price translates to a hefty RM3,188 on a psf basis. This is 6% higher than its market value based on an appraisal conducted by CH Williams Talhar & Wong and Raine & Horne International Zaki & Partners.

• GDV estimate. No potential GDV figure was disclosed for the said land. MRCB currently has an existing parcel of 1 acre land in Jln Kia Peng which has an estimated GDV of RM387m. Extrapolating from this, the German Embassy land could potentially generate a GDV of RM715m.

• Impact on net gearing. We estimate that the acquisition of the German Embassy land would stretch MRCB’s proforma net gearing from 153% to 166%. Excluding the Sukuk (which is non-recourse debt tied to the EDL), proforma net gearing would increase from 99% to 112%.

Risks

• EPS dilution from an inevitable looming cash call.

Forecasts

• No changes to our forecasts pending GDV and launch timeline for the German Embassy land.

Rating

BUY TP: RM1.88

• We are giving MRCB’s new management the benefit of the doubt that it can successfully turn the company around in the long term. Catalysts include successful launch of Kwasa Damansara and winning the PDP role for LRT3.

Valuation

• TP of RM1.88 is based on the SOP method which implies 30x FY15 PE but a more palatable 19.3x on FY16 once earnings momentum starts to set in.

Source: Hong Leong Investment Bank Research - 8 Apr 2015