MRCB’s private placement is estimated to raise up to MYR612m, which will likely be used as working capital. Maintain BUY with our TP revised to MYR1.60 (12% upside) post-placement. Although the equity call should help MRCB to better manage its finances, we believe that its gearing will likely remain above 1x as more construction projects take off (current construction orderbook: MYR6bn).

Placement of up to 20% of new shares. Malaysian Resources Corp (MRCB) has announced the private placement of up to 20% of its issued and paid-up capital which translates into about 493.6m new shares. Based on the indicative issue price of MYR1.24 per share, MRCB could be raising up to MYR612m in gross proceeds. The proceeds will likely be used as working capital and repayment of some of its loans. The placement is expected to be completed by 2Q16.

Placement rationale. MRCB has applied to the Ministry of Finance(MOF) to be deemed a Bumiputera Controlled Public Listed Company (BCPLC). That said, the approval of MRCB’s BCPLC status is conditional on it meeting a minimum bumiputera equity of 35%. As such, MRCB’s major shareholder, Gapurna, will be subsc ribing to 60m of the shares, with the intention to subscribe for an additional 60m shares. This could see Gapurna’s stake in MRCB increasing to 19.5% from 16.7%currently. MRCB believes that by positioning itself as a BCPLC, this will open more doors for more construction jobs. We are not surprised by the placement as we have not ruled out an equity call from MRCB given the slew of upcoming projects and its high gearing. That said, we expet that net gearing could likely remain above 1x going forward as more land deals and construction jobs come through.

Earnings forecast. We trim our FY16-17 net profit forecasts by 4% after imputing more debt going forward, although our FY16 -17 EPS is reduced by 16-25% after factoring in the larger share base post-placement.

Maintain BUY. We revise our TP lower to MYR1.60 (from MYR1.80)after adjusting for the larger unit base and proceeds from the placement.We reiterate that positive news flow on construction and landbanking could continue to drive MRCB’s near-term share price.