MRCB announced the following agreements with DMIA (M):-

• Share  swap  agreement  on  the  transfer  of  MRCB’s  100%  equity interest in Lotus Terrrain (LTSB) to DMIA in consideration for the transfer of DMIA’s 30% equity interest in Country Annexe (CASB); and
• Share  sale  agreement  on  the  disposal  of  MRCB’s  70%  equity interest in Paradigma Berkat (PBSB) to DMIA for RM39.0m.

LTSB  is  the  joint  venture  company  to  undertake  the  proposed  double tracking of railway lines in Klang Valley while CASB has been identified as the  joint  venture  company  to  undertake  a  mixed  development  project  in Brickfields on a commercial land measuring  4.92 acres. PBSB in the joint venture company to undertake the Salak South mixed development project over  24.5  acres  with  a  GDV  of  around  RM2.1b.  The  two  agreements  are expected to be completed by 4Q15. (Source: Bursa Malaysia)

Comments:  The net effects of the two  agreements upon completion is full control of CASB by MRCB, and LTSB and PBSB by DMIA. The proposed disposal of the 70% interest in PBSB will entail giving up a potential share of GDV of RM1.4b in exchange for RM39.0m cash (an advance of RM15.0 m will also  be recouped). Transfer of MRCB’s 100% interest in LTSB would also exclude  MRCB  from  the Klang Valley  Double  Tracking  project  which has  yet  to  be  formally  awarded  and  which  may  have  a  contract  value  of around  RM500m.  However,  in  return  MRCB  will  increase  its  stake  in  the mixed development project to be undertaken by CASB within the vicinity of KL Sentral.

Pending the disclosure of the exact GDV of the CASB development, we do not expect the agreements to have a significant impact on our FY15E-17E forecasts for MRCB, RNAV-based TP of RM2.26 and BUY rating.

Source: Affin Hwang Capital Research - 1 Apr 2015