Post-briefing, we are reassured by MRCB’s growth prospects, given the projects’ strategic locations and strength in TODs. Maintain BUY, with a GDV from its Bukit Jalil and Cyberjaya lands. We believe that MRCB continues to benefit from positive construction news flow, which should help to mitigate the current property slowdown.

Leveraging on transit-oriented developments (TODs) theme. Malaysian Resources Corp (MRCB) hosted an analyst briefing to provide more colour on its new deals which we have highlighted in our 29 Oct report: Malaysian Resources Cop : Contracts Flow Materialises. We came out of the briefing reassured on the prospects of these developments, as the projects are all strategically located within the proximity of at least one type of public transit transportation (refer to Figure 1). We reiterate that we are positive on the prospects of Bukit Jalil, as we expect the land value to escalate in light of the rapid development in the surrounding areas. That said, it would likely take some time before this development materialises and has a meaningfulearnings impact.

More efficient capital management. Management addressed some concerns over its capital management for these developments, given itshigh gearing of above 1x. It plans to set up a private property development fund where it would park some of its existing projects as well as future land acquisitions to reduce the strain on its balance sheetand cash flow. We also note that MRCB may have a stronger recurring earnings base from LRT 3 project delivery partner (PDP) fees and higher dividend income from its 31%-owned MQ REIT (MQREIT MK, NEUTRAL, TP: MYR1.23) as more assets are sold, which should be sufficient to cover its cash flow requirement.

Earnings forecast. Unchanged, as we expect a meaningful contribution to only come in beyond our forecast horizon.

Maintain BUY. Our TP has now been revised to MYR1.80 after factoring in the GDV from the Cyberjaya and Bukit Jalil lands and imputing a lower discount to RNAV of 30% (from 35%) in view of the improving news flow on construction jobs and landbanking efforts.

More details on the new contracts Strategic locations an advantage. We note that all of its new projects are expected to be within the proximity of existing and future public transportation access. We believe that this works in the favour of MRCB, given its strength in transit-oriented development (TODs). We also note that Kwasa Utama’s Plot C8 is located beside MRCB’s MX-1 land, and as such, this would allow for a more effective integration between the two plots of land.

Bukit Jalil redevelopment to improve efficiency and attractiveness. As part of its revitalisation plans, MRCB would be redesigning the National Stadium given that it is close to 20 years old. It also plans to improve on the overall attractiveness and efficiencies of the area, with plans to convert some carpark bays into parks / recreational areas that can be utilised for both sports and non-sports events. We estimate a GDV of about MYR10bn for the plots of land that it would receive as payment in kind for the revitalisation contract.

Cyberjaya land. The Cyberjaya City Centre (CCC) project is located next to the Lim Kok Wing University. As with most of its TODs, the CCC would be a mix of commercial, retail and residential elements. That said, MRCB has stated that it is expected to kick off the first phase of development with a basic convention centre tocater to the mass-market. Given the project’s proximity to the Putrajaya ERL and with the future Cyberjaya MRT station expected to be located next to the CCC, MRCB is expecting the CCC to pull traffic from surrounding areas such as Dengkil and Putrajaya. We estimate that the GDV for the project could reach about MYR8bn.

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Source: RHB Research - 13 Nov 2015