News

• Subscription into a JV... MRCB announced that it will be subscribing to a 70% stake in CSB Development (i.e. JV-co) for RM269.5m with the balance 30% held by Cyberview Sdn Bhd (for RM115.5m), a wholly owned subsidiary of the Ministry of Finance.

• ...to develop Cyberjaya City Centre. The purpose of the JV-co is to develop the Cyberjaya City Centre (CCC), a key project that was earmarked during the recent Budget 2016. Cyberview currently owns 113.27 acres of land (80%) within the 141.27 acre CCC. Upon both parties subscribing to the shares in the JV-co, the funds will be used to purchase the land from Cyberview.

Comments

• Pricing appears fair. The share subscription of both MRCB (RM269.5m) and Cyberview (RM115.5m) into the JV-co will raise a total of RM385m. This sum will be used for (i) RM349m to acquire the 113.27 acres of land from Cyberview; (ii) payment of land related cost amounting to RM31m; and (iii) initial working capital of RM5m. The land acquisition price of RM349m is inline with the market value appraised by independent valuer, CH Williams Talhar & Wong at RM350m (or RM150.54 psf).

• Location, location, location. The CCC is located within Cyberjaya, roughly 35km from the KL city centre. In terms of accessibility, CCC is linked via 5 highways (Figure #1). It is also situated next to Putrajaya Sentral which offers connectivity via the soon to be implemented MRT Line 2.

• Development details. CCC will be a mixed development comprising residential, retail, commercial, hotels and a convention centre with the concept of a smart, sustainable and vibrant city. Budget 2016 stated that CCC will have a total GDV of RM11bn. Media reports have stated that construction of Phase 1 (RM5.4bn) will begin in mid-2016 and take 7 years to complete.

• Impact to gearing. The stake in the JV will further stretch MRCB’s net gearing from 112% to 124% on a proforma basis (67% to 78% if its concession non-recourse debt is removed).

Risks

• EPS dilution from an inevitable looming cash call and high net gearing.

Forecasts

• Unchanged pending further clarity on the launch details.

Rating

BUY TP: RM1.36

• Whilst still in its early days, we reckon that MRCB’s new management is on the right path (albeit at a slow pace) to turn the company around.

Valuation

• TP of RM1.36 is based on the SOP method which implies 31.3x FY15 P/E but a more palatable 20.6x on FY16 once earnings momentum starts to set in.

Source: Hong Leong Investment Bank Research - 29 Oct 2015