News

• Buys KL land. MRCB announced that its 51% owned subsidiary, Metro Spectacular, has entered into a Sale & Purchase Agreement with DBKL for the acquisition of 3 parcels of land (2 leasehold and 1 freehold) measuring 10.1 acres at Jln Putra, KL for a total cash consideration of RM335.5m. The remaining 49% shareholding in Metro Spectacular is held by URP City. However, no further details were provided on its background.

Comments

• Slightly out of KL city centre. The said lands are located 4km to the north of KL city centre and are bounded by main access roads such as Jln Putra, Jln Tun Ismail, Jln Tun Razak and Jln Kuching. At the purchase price, this translates to RM765 psf which we deem to be fair.
• Minimal development details. The land will be used for commercial developments but no indicative GDV figures or plot ratio was provided.
• Net gearing to creep up slightly. MRCB recently proposed a significant 1-for-1 rights issue mainly to fund the National Sports Complex privatisation and repayment of borrowings. Although the rights issue will reduce net gearing from 94% to 38% on a proforma basis, the said land acquisition will increase it slightly to 41%.
• Biting more than it can chew? MRCB currently has an estimated GDV in excess of RM40bn that it can undertake. As such, we are rather surprised with this land acquisition considering that MRCB already has a sizable GDV on its plate waiting to be executed.

Risks

• Should more land acquisitions take place, net gearing will eventually creep back up again post rights issue.

Forecasts

• Unchanged as there is lacking of details regarding the development of the said lands. Rating Maintain HOLD, TP: RM1.12 (ex rights)
• Whilst there is certainly no lacking of catalytic projects that MRCB has in hand, the issue here as always, is about core earnings delivery and sustainable management of its net gearing.

Valuation

• Our unchanged SOP based TP (20% discount) of RM1.12 is on an ex-rights basis which assumes a rights price of RM1.00. This implies a rather expensive ex-rights P/E of 86x and 60x on FY17-18 earnings.

Source: Hong Leong Investment Bank Research - 16 Jun 2017