Last Friday (30 Nov), Malaysian Resources Corp (MRCB) announced that all of its conditions precedent for the Bukit Jalil land sale to EPF have been fulfilled. With this deal, MRCB has completed its 5-year overhaul since new management arrived in 2013. Macquarie Equities Research (MQ Research) said in its research report (3 Dec) that financially, MRCB is now in its best state since the Asian Financial Crisis back in 1997. MQ Research maintains Outperform, with a price target of RM1.00.

Event

• On 30 November 2018, MRCB has announced that all of the conditions precedent for the Bukit Jalil land sale to EPF, have been fulfilled accordingly to the subscription shareholders’ agreement (SSA). As such, the SSA has become unconditional on 30 November 2018 in accordance with the terms and conditions contained therein.
• Recall that in March 2018, MRCB announced that EPF, via its wholly-subsidiary – Tanjung Wibawa Sdn. Bhd (TWSB), will acquire an 80% stake in the development company of the Bukit Jalil Sentral called Bukit Jalil Sentral Property (BJSP). The proposed transaction will cost EPF RM1.43bn.

Impact

• Net gearing will be reduced to 20%. Following this announcement, MRCB has fulfilled its promises to the shareholders to conclude two major deals in 2018 – i) Eastern Dispersal Link Expressway (EDL) disposal and; ii) Bukit Jalil land sale to EPF. These two transactions will bring a total additional cash of c.RM2.75bn to MRCB. According to management, the cash will be utilised to pare down all its landbanking-related debt and the concession’s debt. Management guided that following the conclusion of the Bukit Jalil land sale to EPF, its net gearing will be significantly reduced to c.20% (72% in 3Q18).
• More things to be done with stronger balance sheet. With this deal, MRCB’s landbank will all effectively be debt-free; what is left in the balance sheet are the working capital debt, which are mostly bridging debts. Given its strong balance sheet, MRCB could enter into more government projects which are driven private finance initiate (PFI) namely new airports, waste management incinerators and water related works.
• Additional RM11bn of additional orderbook. Recall that in May 2018, MRCB has already secured the contract as the management contractor of the Bukit Jalil Sentral development in a provisional contract sum of RM11bn. Given that MRCB only has 20% control of the development, the works involved for this project will be recognised as an external order. This would immediately bump up MRCB’s orderbook from RM10.5bn to RM21.5bn.

Action and Recommendation

• Following this deal, MRCB has completed the five-year overhaul of the company since the new management arrived in 2013. Back in 2013, MRCB’s net gearing was at 236%, with zero actual cash in its balance sheet (available cash then were overdrafts). In 2013, MRCB’s orderbook balance was only at RM1.9bn (including Gapurna’s orderbook injection in 2013) vs. now at RM21.5bn. Financially, the company is now in its best state since the Asian Financial Crisis back in 1997. Maintain Outperform, with price target of RM1.00.

Source: Macquarie Research - 4 Dec 2018