By Khairul Khalid
MRCB has bought German Embassy land in KL for RM259 million and is bidding for French Embassy land that may cost RM1 billion. Will the property developer’s land bank buying spree lift its sagging share price?
Business model: Malaysian Resources Corporation Bhd (MRCB) is a property and infrastructure developer with with four core business activities – property (MRCB Land), engineering & construction, infrastructure, concession & environment.
The company is developing the Kuala Lumpur Sentral CBD (commercial business district) that includes office towers, retail, commercial, hotels, luxury residentials and the biggest transportation hub in the country – KL Sentral.
This week MRCB signed an agreement with Pelaburan Hartanah Bhd (PHB) to sell its 51% stake in the shopping mall Nu Sentral for RM119.78 million. The mall was a joint venture between MRCB and PHB with 51% and 49% stakes respectively.
The company has also been acquiring land banks recently. This month it purchased the land on which the German Embassy was situated on along Jalan Kia Peng for RM259.16 million. It is planning a mixed development (residential and commercial) on the land and the project is expected to begin next year with an estimated gross development value (GDV) of between RM1.2 billion and RM1.6 billion.
Two months ago, it submitted a bid to acquire the French Embassy land in Jalan Ampang, Kuala Lumpur and is now awaiting the outcome of the tender bid. The two parcels of land are said to cost approximately RM1.11 billion.
Last February, the company posted profit before taxation (PBT) of RM221 million for the financial year 2014 (FY14), up from losses of RM110 million the previous year.
The company attributed the earnings to its engineering and construction division, which is currently undertaking the ongoing construction of the Ampang LRT (light rail transit) and Kelana Jaya LRT lines extension project, river rehabilitation project and transmission lines projects.
MRCB also cited the disposal gain from the sale of its investment in Duke (Duta-Ulu Klang Expressway) that was recognised in the second quarter of FY14. It is also the concessionaire for the EDL (Eastern Dispersal Link) Expressway in Johor Bahru.
Shareholders and management assessment: MRCB’s group managing director is 59-year-old Mohamad Salim Fateh Din, who was also appointed to the board of MRCB on Sept 2, 2013 and is a member of the executive committee.
He currently sits on the boards of Gapurna group of companies and is also the chairman of British American Tobacco (Malaysia) Bhd.
He is the father of 34-year-old Mohd Imran, the executive director of the company. Imran had been appointed as MRCB’s group chief operating officer in 2013.
Salim and Imran are also major shareholders of MRCB through Gapurna Sdn Bhd which has a 15.5% stake in MRCB.
The other major shareholders are the Employees Provident Fund (36.5%) and and Lembaga Tabung Haji (10.2%).
Share performance:
What analysts think: Most analysts think that MRCB’s disposal of Nu Sentral is in line with its strategy of monetising its investment properties.
Nevertheless, the timing took some by surprise.
“The disposal came sooner than we had expected as we envisioned MRCB to only sell the mall once it becomes profitable as it would be able to fetch a higher valuation,” said a Hong Leong analyst report.
According to AmResearch analysts, the sale of the mall represents MRCB’s second transaction with PHB within nine months. Last July, MRCB bought PHB’s balance 51% stake in Penang Sentral Sdn Bhd for RM51 million.
“While the proceed from the disposal accounts for only 53% of our valuation for the mall, it paves the way for MRCB to monetise its non-core investments upfront and commit more resources to building its rising property development profile,” said AmResearch.
According to UOB Kay Hian (UOBKH)’s analysts, 2015 will see major asset monetisation by MRCB to address concerns of its high gearing. This may also include the Reit-ing (real estate investment trust) of its investment properties as well as disposal of other non-core assets.
UOBKH also expects MRCB’s positive capital restructuring of its EDL project, one that is widely seen as a drag to company’s earnings, to significantly reduce interest costs. It also said: “Our channel checks suggest that there is an interested party looking to buy a stake in the expressway.”
MIDF analysts said that MRCB is differentiated from other general property developers as most of its developments are transport oriented and we expect its property sales to remain resilient.
“We are not overly concerned on its current gearing level as there will be possible monetisation of other KL Sentral investment assets into a Reit,” said MIDF.
Earnings forecast:
StockStalk: MRCB’s share price has fallen roughly 20% in the last 12 months and a slumping property market certainly has not helped.
Nevertheless, its recent asset disposals such as the Nu Sentral sale and Reit-ing of Platinum Sentral should improve the company’s cash flows, reduce debts and help it to fund its land banks, such as the German Embassy and possibly the French Embassy land deals.
Investors may see MRCB’s weak share price currently as an opportunity. The question is whether cautious sentiment towards the property sector in general will hamper any price rebound in the near to mid term.
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Important Note and Disclaimer: This article should not be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KiniBiz makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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