KUALA LUMPUR: CIMB Equities Research is maintaining its Add for Malaysia Resources Corporation Bhd (MRCB) with a target price of RM1.35 after it secured a RM11bil contract to undertake a mixed development project in Bukit Jalil.
It said on Tuesday this news, coupled with the recent RM7.5bil management contract for Kwasa Damansara, continues to be positive for the longer-term for MRCB.
“Target price remains pegged to a 10% RNAV discount. Key potential catalysts are job wins and the sale of EDL highway. Key downside risks are weak job wins and property sales,” it said.
Bukit Jalil Sentral Property Sdn Bhd (BJSP) has appointed MRCB Land as the management contractor for a mixed development project in Bukit Jalil.
CIMB Research said this deal is deemed a related-party transaction (RPT), but a substantial one, given the contract value of RM11bil to be executed over 20 years.
BJSP is 85%-owned by MRCB Land via Rukun Juang Sdn Bhd (RJSB). BJSP is the owner and developer of 76 acres of leasehold land (3.3 million sq ft) in Bukit Jalil. The overall land bank is valued at RM1.4bil.
Geographically, the land is in the matured area of Bukit Jalil with good population catchment and near notable developments such as Paradigm Garden City and Bukit Jalil City. It is about 30 minutes’ drive away from Kuala Lumpur, Petaling Jaya and Shah Alam.
The Sungei Besi MRT station, part of the MRT SSP Line (MRT 2), currently under construction, is within a 2km radius of the land.
The 76-acre land will be developed over 20 years with a plot ratio of 1:6.5. It will feature office towers, hotels, retail shops/mall, and offices to be built on four separate land plots each with a total gross development cost (GDC) of RM14.8bil.
The RM11bn management contractor scope awarded to MRCB Land makes up 74% of total GDC.
Included in the RM11bil is an RM8.5bil engineering, procurement, construction and commissioning (EPCC) work, including planning and design, which would be awarded to MRCB Builders.
“Based on the average 5% project management fees, we estimate that the management contractor portion would contribute RM27.5mil per annum in net profit or 19% of our FY20F net profit.
“We expect a full-year contribution to MRCB in FY20F at the earliest given the various approvals needed,” said the research house.
CIMB Research said potential earnings contributions are unlikely to flow through as one lump-sum given the different time lines of each of the four developable plots.
“We gathered that potential earnings from the RM21bil GDV for the property development portion would only flow through beyond FY20F. We have not factored these two components into our forecasts pending shareholders’ approval,” it said.
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