News

• MRCB announced that it has entered into a Sale and Purchase agreement with PERKESO for the former to dispose a parcel of land (1.866 acres) to the latter for RM323m.

Comments

• Gain on disposal. To recap, the said land was previously acquired by MRCB in April 2015 for RM267m. The audited net book value of the land (as at end FY16) stood at RM269m. As such, the disposal is expected to net a gain of RM54m for MRCB.

• Further reduction to net gearing . Following the completion of its 1-for-1 rights issue, MRCB’s net gearing was reduced from 114% in 3Q17 to 54% in 4Q17. With the completion of the Kia Peng land sale, we estimate proforma net gearing to be further lowered to 47%.

• Potential to turn net cash . Management previously shared several other de-gearing initiatives such as (i) subscription of EPF to the Bukit Jalil project; (ii) disposal of EDL; (iii) disposal of Ascott; and (iv) disposal of Menara Celcom. Should all of these measures come to fruition, MRCB’s balance sheet will move into a net cash position.

Risks

• Volatile core earnings delivery from quarter to quarter.

Forecasts

• Unchanged as the gain on disposal would be treated as a non-core item.

Rating

Maintain BUY, TP: RM1.31

• Given its healthier balance sheet post rights issue, we reckon that MRCB is now in a much better position to execute its various catalytic projects. The disposal of EDL should serve as a near term catalyst.

Valuation

• Our SOP based TP of RM1.31 is unchanged.

Source: Hong Leong Investment Bank Research - 20 Mar 2018