News  Yesterday, MRCB announced that it had entered into a Related Party Transaction (RPT) with Bisraya Acres Sdn Bhd (Bisraya Acres), a wholly-owned subsidiary of Gapurna Sdn Bhd (GSB), to acquire three parcels of land measuring 14.17acres in total (two parcels residential land measuring 9.6 acres and 4.55 acres of commercial land) located in Bukit Rahman Putra, Sungai Buloh for a total cash consideration of RM83.0m.

Comments  Land cost is considered fair being 15% of its estimated GDV of RM559.1m as it is within the industry average ratio of 15%-20%, coupled with the term that MRCB also has the right to request for a reduction in the purchase price for the three parcels of land in the event that the overall return on the gross development value is less than 21%. As at 4Q13, its net gearing stood at 1.45x and we would expect its net gearing to inch up to 1.49x post acquisition of the three parcels of land. However, we do expect its net gearing level to come down to 1.27x as MRCB pares down its debt post disposal of Platinum Mall. The acquisition is expected to complete in 2Q14 should all the conditions precedents are met.

 Two out of the three parcels of land would be for residential development purposes comprising 49 units of 2.5 storey terrace houses, 216 condominium units and 30 units of town villas. Subsequently, the remainder 4.5 acres of commercial land would have a commercial development of over one million sq ft gross floor area comprising commercial office/shops and service apartments.

 The land is strategically located a stone throw away from Kelab Rahman Putra Malaysia and approximately 3km from Bandar Baru Sg Buloh, which would likely cater for upgraders.

 However, we only expect meaningful earnings contribution to kick in late FY15 as the construction works for the residential development are only expected to commence in 1Q15.

Outlook  We are still expecting a few more major developments in the pipeline that will accrete the Group’s value namely: (i) injecting its other property investment portfolios worth more than RM1.0b into REITs, (ii) higher possibility of replenishing its order book of about RM1.0b this year driven by building and infra projects, and (iii) emerging as one of the frontrunners of the Kwasa Damansara project.

Forecast  No changes to our earnings forecast.

Rating Maintain OUTPERFORM

 With the stock offering potential upside of 41%, MRCB could be a “Dark Horse” of the year after being bashed down by investors due to negative news/development (i.e. huge provisions of RM167m due to poor executions, EDL “limbo”, PJ Sentral’s NGD-PKNS court tussle) last year.

Valuation  We adjust our TP higher from RM2.02 to RM2.33 after factoring in the land acquisition into our Property RNAV and its effective stake in Quill Capita REIT post the disposal of Platinum Sentral.

Risks to Our Call Delays in construction projects

 Lower-than-expected property sales.

Source: Kenanga