News

• Disposal of Nu Sentral Mall. MRCB announced that it has entered into a Share Sale Agreement with Pelaburan Hartanah Bhd (PHB) to dispose its 51% stake in the Nu Sentral Mall for RM119.8m. The Nu Sentral Mall is currently held by MRCB and PHB on a 51:49 basis.

Comments

• Asset monetisation. Nu Sentral Mall is a relatively new mall which recently opened its doors on March 2014. We are not entirely surprised by this disposal as MRCB has always guided of its intentions to monetise its investment properties. The disposal however, came sooner than we had expected as we envisioned MRCB to only sell the mall once it becomes profitable as it would be able to fetch a higher valuation.

• No more red equity accounting. In FY14, MRCB equity accounted JV losses amounting to RM36.6m largely due to losses for the Nu Sentral Mall resulting from high charge out of finance and start-up costs. With the disposal of Nu Sentral Mall, MRCB will no longer have to equity account these losses.

• Much needed proceeds. The disposal proceeds will be much needed to fund MRCB’s landbanking spree. Earlier this month, MRCB won the tender for the German Embassy land amounting to RM259m. It is also bidding for the 3.2ha French Embassy land in Jalan Ampang. Media reports stated that the bids are expected to come in at around RM600m (roughly RM1,800 psf).

• Impact on net gearing. We estimate that the disposal of Nu Sentral Mall would ease MRCB’s proforma net gearing from 153% to 146%. Excluding the Sukuk (which is non-recourse debt tied to the EDL), proforma net gearing would taper off from 99% to 93%.

Risks

• EPS dilution from an inevitable looming cash call.

Forecasts

• No changes to our forecasts as we assumed that Nu Sentral would break even this year.

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 in which it is said to be the top contender.

Valuation

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

Source: Hong Leong Investment Bank Research - 23 Apr 2015