AmResearch reaffirms Buy for MRCB

Malaysian Resources Corp Bhd executive director Mohd Imran Salim at a briefing on its RM1.63bil privatisation deal to refurbish and upgrade the Bukit Jalil National Sports Complex.

KUALA LUMPUR: AmResearch has reaffirmed its Buy rating on Malaysian Resources Corporation Bhd (MRCB) and raised its fair value from RM1.65 a share to RM2.12.

It said on Monday the RM2.12 fair value was based on lower discount of 35% (previous: 40%) to its revised net asset value (NAV) of RM3.25 a share. 

“We have also raised our NAV to account for the accretion to its asset value from its recent prolific infrastructure/land deals: i.e. the (i) Bukit Jalil; (ii) Phase 1 of Cyberjaya City Centre (CCC); (iii) Kwasa Utama management contract; and (iv) LRT 3 PDP project,” it said. 

AmResearch pointed out MRCB is approaching the tail-end of its restructuring moves to optimise its corporate structure, balance sheet and growth trajectory, under the stewardship of the entrepreneurial management team from Gapurna. 

It said 2016 would be a lift-off year as MRCB would be moving from restructuring to growth, giving its share price a big kick. 

For a start, MRCB is leveraging on the success of KL Sentral to elevate itself as the premier transport-oriented developer (TOD). 

The emphasis is on railway (MRT and LRT) accessibility and connectivity in urbanised areas and the city centre to drive end-user demand and inward migration. This is the key differentiating factor for MRCB. 

“With the recent land deals, MRCB’s landbank GDV has swelled to RM45bil from just RM11bil prior to the injection of the Nusa Gapurna lands. MRCB has consciously taken concrete steps to strengthen its construction division.  

“A major earnings drag in the past, it is now leaner with a newfound focus on infrastructure works and more importantly: fee income from the LRT 3, CCC and Kwasa Utama contracts. 

“The latter could be worth RM546mil over the next twelve years, making up a quarter of its external orderbook of RM2.3bil and a healthy orderbook cover of 4.5x. Ytd, MRCB has secured ~RM1.5bil worth of new contracts. MRCB is cognizant of the need to deleverage its balance sheet,” it said.

AmResearch estimated its FY16F net gearing would rise to 1.6 times (FY15F: 1.1 times) once it fulfils its commitments for the ex-German embassy and MX-1 (Kwasa Damansara) lands. 

However, the research house said it was not unduly concerned. Capital locked-up in all its investment properties would be recycled into its REIT, with the proceeds redeployed to fund its higher ROE landbanking deals. Menara Shell (RM607mil) may be next to be injected, followed by Ascott Residences (RM114mil). 

MRCB is also exploring the creation of private property funds with select institutional investors to co-finance its development projects.