News

• Appointed as PDP. MRCB has been appointed as the Project Delivery Partner (PDP) by Kwasa Land in connection with the common infra works at the proposed Kwasa Damansara township.

• Related party transaction. Kwasa Land is the master developer of Kwasa Damansara and is a wholly owned subsidiary of EPF. The latter is in turn, MRCB’s largest shareholder with a 37.4% stake, making this a related party transaction.

• Role as the PDP. The common infra works to be implemented include roads, drainage, waterworks, telecommunications, sewerage and M&E works. As PDP, MRCB will be required to manage the approval process from relevant authorities, manage design consultants, provide project management services as well as testing and commissioning.

• Fee structure. The PDP fees payable to MRCB is 5% of the project’s development cost of RM2.2bn, which works out to be RM112.3m. MRCB can also claim for certain reimbursables subject to a cap of RM63.3m.

Comments

• More from Kwasa Land. The appointment of MRCB as PDP is not entirely surprising as it is already undertaking 2 roles at Kwasa Damansara - (i) to develop the city centre area (dubbed MX-1) via a 70:30 JV with Kwasa Land and (ii) managing contractor role for another parcel of land, dubbed C8, for a contract sum of RM3.1bn.

• Long contract duration. The development of Kwasa Damansara spans across 2,330 acres with a total GDV of RM50bn over 20 years. Given its long development horizon, the PDP fees is likely to be spread across this tenure as well. That said, we are positive on the PDP role as it would provide MRCB with a steady income stream, which would be recognised somewhat in tandem with the development’s rollout pace.

Risks

• Delays in the development rollout of Kwasa Damansara may also set back implementation of the infra works and consequently, MRCB’s PDP fee recognition.

Forecasts

• No change to estimates for now pending further clarity from management at next week’s briefing (31 May).

Rating

HOLD TP: RM1.32

• Whilst MRCB has been successful to participate in recent catalytic projects, we remain cautious on its earnings delivery which has been rather patchy to say the least.

Valuation

• Our SOP based TP (10% discount) of RM1.32 implies a rather stretched FY16-17 P/E of 27x and 21x.

Source: Hong Leong Investment Bank Research - 27 May 2016