News   MRCB announced that it had entered into a Share Sale Agreement (SSA) to acquire Nusa Gapurna Development Sdn Bhd (NGD) and its subsidiaries for a price consideration of RM729.0m via a cash settlement of RM110m and the issuance of 389.0m of new MRCB shares (+29%) valued at RM1.55 per share. MRCB has also entered into a right of first refusal and call option agreement (call option) with NGD for another 36 acres of land in Petaling Jaya.

  

Comments   Positive on the land acquisition. We are positive on this acquisition as it is just about time that MRCB will need to replenish its land banks as KL Sentral will be fully developed by 2014. 

 Prime lands. MRCB is acquiring NGD's lands for RM459.0m (RM698 psf), which is priced at a 13.0% premium to the market value of RM617 psf. We think that the price is somewhat reasonable as the lands are located at prime areas like Petaling Jaya, Old Klang Road and Subang (Petaling Land office) with a combined GDV of RM5.6b. 

 Getting more lands from NGD?  With the call option, MRCB will be able to procure for more prime lands in PJ held currently by NGD's subsidiaries, i.e. Nilaitera Sdn Bhd (Nilaitera) and Projekmaju Sdn Bhd (Projectmaju). These companies cumulatively hold 36 acres of land in PJ i.e. the lands where the National Film Department of Malaysia and Lot 1&2 at the surrounding of around P.J Senteral. NGD is in the midst of obtaining the necessary approvals and DOs for the lands. The call option settlement will also be made via a new share issuance.  

 GHC potential?  MRCB's order book now stands at RM212.0m and it has the potential to secure another RM4.0b of new contracts from Nilaitera and Projectmaju. However, these contracts are likely to be eliminated in MRCB's consolidated profits (assuming that MRCB exercises the call option). 

 

Outlook  Positive in the long term, although the near-term outlook is weak due to the general election risk.

  

Forecast  We have tweaked our FY13E higher by 9.0% as we imputed in the contribution from GHC.

  

Rating            Maintain OUTPERFORM

 We are maintaining our  OUTPERFORM recommendation.

  

Valuation   However, our Target Price has been reduced by 12.0% to RM1.92 based on our RNAV valuation. We have factored in a 27% dilution from the issuance of the new shares and warrants (staggered basis) and included in the value of the new lands in our RNAV.

  

Risks  Projects delays, cost overruns and election risks.

Source: Kenanga