News  MRCB announced that it has entered into a conditional share sale agreement with Telekom Malaysia (TM) for the disposal of its entire equity interest in GTC Global Sdn Bhd (GTC) for a cash consideration of RM45.0m.

 Barring any unforeseen circumstances, the proposed disposal is expected to be completed in 1Q14.

 MRCB is expected to generate RM30.2m net gains from the disposal.

Comments Selling at a premium. We are positively surprised by the announcement as MRCB is disposing a non-core business at a premium. Recall, MRCB bought Gapurna Global Solution, the owner of GTC at RM20m via shares swap and partly in cash in February 2013. After less than a year, MRCB is able to dispose it at more than 2.0x cost of investment. In addition, the price tag of RM45.0m translates into 1.0x book value and 12.9x PER of FY12.

 Improve financials. While we understand that the proceeds from the proposed disposal will be utilized to fund the working capital of MRCB, it will also improve MRCB’s gearing in the foreseeable future. To date, GTC has long-term secured contracts of RM445m and it has been actively tendering and bidding for sizeable projects. In the event that GTC secured new sizeable contracts, MRCB would have to raise fund to finance considerable huge capex to kick-start those projects. This may further increase its gearing ratio.

 Staying focus on core business. Post disposal, MRCB will continue to focus on its core businesses of property development and specialised Infrastructure, Concession and Environment projects.

Outlook  As the potential RM2.9b GDV of PJ Sentral has yet to be inked by MRCB due to court tussle involving NGD-PKNS, the next catalysts for MRCB would be: (i) the resolution of long-standing Eastern Dispersal Link (EDL) issues, (ii)potential new contracts of rail-infrastructure of >RM1.0b, and (iii) being a forefront runner for the master developer of RM10b Kwasa Damansara (Sungai Buloh RRI), (iv) sale of another highway asset (i.e. DUKE).

Forecast  Maintained. We expect there will be one-off profit from the disposal in 1Q14.

Rating UNDER REVIEW

 We are putting MRCB UNDER REVIEW pending its result announcement this Friday. MRCB’s share price has been weakening due to lack of fresh catalysts.

Valuation  We are maintaining our Target Price of RM1.59 based on our RNAV-based valuation.

Risks  Potential called off of PJ Sentral deal

 Delays in construction projects.

Source: Kenanga