MRCB diversifying earnings for recovery

“Our strategy coming into 2020 had been to reduce our concentration risk in Malaysia, with TOD making up 80% of our total GDV of RM32bil. But we could not pursue this because of the outbreak of Covid-19, which distracted us with business discontinuity and other issues that required our attention, ” MRCB's chief corporate officer Amarjit Chhina (pic) tells StarBizWeek.

AFTER a challenging past year, which saw its earnings take a hit due to Covid-19, Malaysian Resources Corp Bhd (MRCB) is now gearing up for recovery.

Chief corporate officer Amarjit Chhina says as the group adapts to the pandemic’s disruption, it will be looking “to reduce concentration risk in Malaysia” where it has carved a name as an urban high-rise developer and a pioneer in transit-oriented development (TOD).

According to Amarjit, this not only entails spreading its wings abroad. In Malaysia it is also looking to spread the risk by exploring other market segments besides TOD, which generally refers to residential and commercial districts located around a transit station.

Towards this end, MRCB has announced a foray into New Zealand to develop the Aotea Central Over Station Development (OSD) with a gross development value (GDV) of RM1.3bil (NZ$452mil) in Auckland City Centre. The project will be developed via a partnership with Auckland Council development’s agency, Panuku Development Auckland.

It will take place on a 125-year leasehold site, which was sold to MRCB for RM117.5mil following a fully contestable market process.

Notably, this is MRCB’s second venture abroad after Australia where it has two property development projects – the first one completed and sold out, while the other, 1060 Carnegie, which is about 10km from Melbourne central business district, about 70% sold.

“Our strategy coming into 2020 had been to reduce our concentration risk in Malaysia, with TOD making up 80% of our total GDV of RM32bil. But we could not pursue this because of the outbreak of Covid-19, which distracted us with business discontinuity and other issues that required our attention, ” Amarjit tells StarBizWeek.

He adds that the group has a team based in Australia who have been scouting for projects in Australia and New Zealand.

“When this Auckland project came, it was right up our street being a TOD and we think it’s going to be a success, ” he adds.

That said, while the venture into Auckland will help diversify earnings and pave the way for more overseas forays, Amarjit said the approach is “to not rush in”.

For now, the plan is to focus on Australia and New Zealand – markets it is familiar with in terms of their regulatory regime and construction process, plus where the economy is still quite robust, adds Amarjit.

And like its two Australian projects, the group hopes to take on more medium-sized projects, which are attractive to local buyers and by partnering with land owners who have tracts of land but no development expertise and funding capabilities.

“For the time being, we are not eyeing other markets even though we have had a couple of exploratory talks. The construction industry is littered with players that have rushed into new overseas markets and paid a heavy price later on so we opt to be cautious, ” he says.

Back to New Zealand’s OSD project, while the land purchase forms about one-fifth of the group’s direct cash pile of RM540mil as at end-Dec 2020, Amarjit says it will not have a major impact on financials in the near-term.

According to him, MRCB has a strong balance sheet and despite the challenges of 2020, it ended the year with net gearing of 0.24 times.

Minus the 10% initial deposit paid, the remaining money would only be due in 2024 before construction starts after the City Rail Link’s Aotea Station is built. He points out that the group has cash equivalents in excess of RM700mil and assets, which it can dispose of if need be.

“But we do not need cash and can wait until we achieve the price we want for those assets instead of selling into a weak market, ” he says.The OSD will be a 21-storey building with a mixture of retail and commercial space and 63 luxury apartments with a total gross floor area of about 487,520 sq ft. The first earnings contribution to MRCB’s bottom line from this project would be in 2025, if all go according to plan.

As for Australia, with things beginning to normalise, Amarjit believes that the group would be able to sell the remaining unsold units of 1060 Carnegie, which has a GDV of RM300mil comprising 173 apartments.

Spreading risks locally

Where Malaysia is concerned, MRCB, which is the master developer of KL Sentral, is looking to diversify into segments such as industrial and assisted-living given that the share of the ageing population has been increasing. It is also looking at more products to cater for millennials, who seek out differentiated products, which are efficient, environmentally friendly and strategically located small-sized units.

The idea behind spreading its market segment in Malaysia is to reduce lumpy revenue recognition that comes from high-rise development towards one generating a more consistent revenue stream going forward.

“That is our intention and we started that journey by going overseas, ” he says, expressing confidence that MRCB has a lot of areas it can leverage with the skills it has being an engineering company that builds property and transportation infrastructure.

Amarjit sees a better 2021 with profitability to be driven by the property division.

“We have RM1.1bil of unbilled sales so it all hinges on construction progress.

“Sentral Suites @ KL Sentral is our biggest project with a GDV close to RM1.5bil. 84% is sold and we have constructed 44%. The bulk of our revenue will come from this, ” he shares.

The group has set a sales target of RM600mil for 2021 with new launches in KL Sentral, PJ Sentral and Kwasa Sentral.

Meanwhile, its construction order book stood RM21bil, comprising mostly long-term projects stretching out to at least another 10 years such as Kwasa Damansara in Sungai Buloh and Bukit Jalil Sentral.

“We have existing contracts like the Damansara-Shah Alam Elevated Highway and the Light Rail Transit 3 projects which are beginning to contribute more.

“Locally, the main focus is to build out and complete our ongoing projects so that we can book the revenue and profit this year to cover the loss in productivity last year due to Covid-19, ” he shares.

As for new projects, it is eyeing large infra projects involving complex structures such as hospitals and stadiums where the barriers of entry are higher and margin slightly higher too because of lesser competition.

For the financial year ended Dec 31,2020 (FY20), MRCB recorded revenue of RM1.2bil and a net loss of RM176.1mil owing to an impairment provisions relating to completed construction projects impacted by the pandemic. Without these impairments, it would have recorded a profit of RM22.4mil in FY20.

The stock, which is 35.9%-owned by the Employees Provident Fund, closed at 51 sen yesterday.

At this level, its market cap stood at RM2.25bil.