News

MRCB has entered into an agreement with Arch Angel DMC S/B (AADMC) to acquire a 70% stake in Arch Angel Capital S/B (AAC) for a total of RM34m. Breakdown of the offer are: (1) RM2.5m for shares in AAC from AADMC; (2) RM1.5m for new shares in AAC; and (3) RM30m for RCPS in AAC.

The deal is expected to be completed by Dec-13.

Highlights

About AAC… AAC has entered into a sale and purchase agreement with Putrajaya Holdings for a piece of 1.84 acres freehold land known as Plot 2C4, Precinct 2, Putrajaya. The acquisition has yet to be completed.

Proposed development… We understand that the proposed development is for a 13-storey commercial building with a potential GDV of RM300m-400m.

Diversifying KL Sentral… We are positive on the move to diversify away from relying too much on KL Sentral for development profits. However, the deal will only be meaningful if the development can be monetised quickly.

Balance sheet impact… Based on 3QFY13’s numbers, MRCB has a cash pile of RM473.8m and total debt/sukuk of RM3.4bn. Hence, this acquisition has minimal impact to its balance sheet.

Risks

Execution risk; Regulatory and political risk; Rising raw material prices; and Unexpected downturn in the construction and property cycle.

Forecasts

Unchanged, pending details of the launches.

Rating

BUY

We remain optimistic that the new management will be able to turnaround MRCB’s operations. Hence, we maintain our long term BUY call on the company.

Positives: (1) Success in acquiring PJ Sentral land; (2) New construction contract wins; (3) Acquiring strategic land banks

Negatives: (1) Concerns over execution for projects; (2) Concerns over take-up rates for property launches; (3) Decision delays by the Government on EDL; (4) High net gearing levels; (5) Short-term earnings dilution arising from share swap with Nusa Gapurna.

Valuation

Maintain Target Price of RM2.06 based on SOP Valuation (see Figure #1)

Source: Hong Leong Investment Bank Research - 24 Dec 2013