News  Last Friday, MRCB announced that they have reached a settlement agreement with PKNS to resolve all their disputes, conflicts, differences, claims and complaints arising from the PJ Sentral land deal.

 In the settlement agreement, MRCB proposed to acquire the remaining 30% of PJ Sentral Lot 12 from PKNS for a total sum of RM85.3m. This will be settled by granting PKNS development rights for the development of Tower 2 on the said land amounting to RM91.1m. Since the development rights is more than the purchase consideration, MRCB is entitled to net proceeds from PKNS amounting to RM5.8m.

Comments  MRCB will now own 100% of PJ Sentral, implying that it will enjoy the full upside of price appreciation for the

landbank over its development period. The GDV of PJ Sentral is RM2.6b and after netting off the development rights of PKNS, MRCB’s portion of the GDV is now RM1.9b, which is at a 4% increase from the perspective of MRCB only owning 70% of the entire RM2.6b GDV.

 Although the incremental value from concluding this deal is not significant, it is a big positive as the longdrawn PJ Sentral dispute between MRCB and PKNS  has finally been resolved. It allows MRCB to realize the value of the PJ Sentral land which would not have been possible without an agreement from both parties. Investors can now look forward to a better earnings trajectory in the future.

Outlook  Management’s commitment to turn around is on track given the significant improvements in property development division, and we continue to hope to see more major developments in the pipeline that would enhance MRCB’s value, i.e. (i) disposal of EDL highway/commence tolling, and (ii) injecting more property investments into REITS.

Forecast  No changes to our earnings forecast. At this juncture, we have not imputed for any earnings contributions from the PJ Sentral project. We hope to get further clarity on the project’s commencement timeline before revising our earnings.

Rating Maintain OUTPERFORM

 The positive settlement agreement between MRCB and PKNS has further reiterated our OUTPERFORM call and “Dark Horse” of the year pick on MRCB and we anticipate more positive news flow for the company, i.e. resolution on EDL highway.

Valuation  We tweaked our SoP driven TP higher by 1% from RM2.27 to RM2.29 after we factored in 4% surplus on its effective GDV in PJ Sentral.

Risks to Our Call Delays in construction projects.

 Lower-than-expected orderbook replenishments.

Source: Kenanga