By Khairul Khalid
MRCB’s spate of big wins such as the RM5 billion triple projects for NSC, Kwasa Land and Cyberjaya continues the developer’s share price revival.
Business model: Malaysian Resources Corp Bhd (MRCB) is a property and infrastructure developer with with four core business activities – property (MRCB Land), engineering and construction, infrastructure, and concession and environment.
On Oct 28, 2015, MRCB announced three major deals in property and infrastructure.
They include a RM1.6 billion land swap contract for the National Sports Centre (NSC) in Bukit Jalil, a RM270 million joint venture to acquire land in Cyberjaya for development, and a RM3.2 billion project management and turnkey contract for Kwasa Land.
The NSC deal is a privatisation agreement between MRCB’s 85%-owned subsidiary Rukun Juang (RJSB), and the Ministry of Youth and Sports, for the refurbishment of the NSC. The project is seen as a fast track job for the 29th SEA Games in 2017.
The project includes the upgrading of facilities at NSC for RM499 million and the construction of a new sports complex, sports mall, convention centre, multi storey car park, hostel, sports museum, library and youth park for RM1.1 billion.
The balance of RM32 million is to be paid to the government as land premium. In return for taking on NSC refurbishment jobs, MRCB will be given 93 acres of leasehold land in Bukit Jalil that is planned as an integrated development with a gross development value (GDV) of RM14.6 billion over 16 years from 2018.
The RM3.2 billion deal signed with Kwasa Utama Sdn Bhd (KUSB) is for MRCB to provide management services for the development and construction of a commercial development named Kwasa Utama measuring 29.8 acres on the Kwasa Damansara development. The contract duration is for 12 years from 2016 to 2027.
The job scope for MRCB for Kwasa Land includes conduct feasibility studies, providing sales and marketing consultancy, facilitating in obtaining approvals, designing and construction of five office towers, a mall and hotel for Kwasa Land.
KUSB is wholly owned by the Employees Provident Fund (EPF). EPF is also is the largest shareholder in MRCB with approximately 38% stake. Therefore, the Kwasa Land deal is deemed as a related party transaction.
EPF was awarded the township development via direct negotiation and finalised the purchase of the 2,330-acre land in Sungai Buloh from the Rubber Research Institute in 2012 for RM2.28 billion.
Kwasa Land Sdn Bhd, EPF’s wholly owned subsidiary, is the master developer of the proposed Kwasa Damansara township.
Overall, Kwasa Land expects RM11 billion from sales of 1,350 acres of land along with revenues from equity participation in the township developments. The estimated GDV of the township is expected to hit RM50 billion over the next 20 years.
The Cyberjaya deal is a 70:30 joint venture between MRCB and Cyberview Sdn Bhd (a wholly owned subsidiary of the Ministry of Finance) to acquire several parcels of land under Area 1 in Cyberjaya measuring around 53 acres. The purchase price is estimated to be RM348.75 million (RM150 psf).
The MRCB-Cyberview joint venture is to develop the Cyberjaya City Centre (CCC), one of the projects earmarked during the recent Budget 2016. Cyberview currently owns 80% (113 acres) of the land within CCC. The joint venture’s funds will be used to purchase land from Cyberview. The joint venture would also have the first right of refusal to acquire and develop Area 2 of CCC measuring almost 60 acres.
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 the 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 was appointed as MRCB’s group chief operating officer in 2013.
According to a Hong Leong Investment Bank report dated Oct 29, 2015, Salim and Imran are also major shareholders of MRCB through Gapurna Sdn Bhd, which has a 16.7% stake in MRCB.
The other major shareholders are EPF (38.4%) and Lembaga Tabung Haji (10.1%). The Hong Leong report also stated that around 35% of MRCB stock are free-float shares.
Share performance:
What analysts think:
According to a Hong Leong report dated Oct 29, 2015, the NSC refurbishment project significantly boosts MRCB’s year-to-date job wins to RM2.2 billion.
“This in turn, would bring its orderbook to RM3.1 billion (excluding the management contract and LRT3 Project Delivery Partner role),” said Hong Leong.
On the other hand, CIMB thinks that the three new projects’ (NSC, Kwasa Land and Cyberjaya) impact on financial year 2016-2017 (FY16-17) earnings is negligible. Especially when considering the potential rise in interest cost over the next 1-2 years arising from the initial funding requirements of all three deals, assuming the majority of it is debt funded.
“While we estimate that MRCB’s total new potential GDV in the pipeline rises by 79% to RM37 billion, the total new land bank of 116 acres (based on effective stakes) should realistically be monetised no earlier than 2018 (beyond our forecast period),” said CIMB in a report dated Oct 29, 2015.
However, CIMB sees the NSC land swap and CCC developments as positive in the long run.
“It should position MRCB as a larger player with exposure to transport-oriented developments and benefiting from the existing LRT and new MRT 2. The concerns at this juncture are upside risks to gearing levels,” said CIMB.
UOB Kay Hian (UOBKH), in its report dated Oct 29, 2015, says that the NSC land swap deal works out to about RM397 psf and is reasonable considering that asking prices in the area ranges between RM200 psf – 500 psf. Nevertheless, UOBKH is concerned about the cashflow of the project.
“A key risk for the project is that it would be cash flow intensive for MRCB, given that the land titles would only be transferred based on stages of refurbishment works,” said UOBKH.
Earnings forecast:
StockStalk: MRCB’s share price had fallen about 50% in 12 months before last September but has rebounded approximately 38% since the announcement of its win as a project delivery partner (in a joint venture with George Kent) in the RM9 billion Klang Valley Light Rail Transit Line 3 (LRT3) project.
Could MRCB’s three major project wins recently in Kwasa Land, NSC, Cyberjaya (the latter two worth an estimated RM20 billion in long term GDV) provide further impetus in its share price recovery?
Many analysts are maintaining their “buy” recommendation on MRCB and the recent rebound could spur investors to accumulate more MRCB shares at a still low price relatively.
However, potential investors need to be aware that any plays in property-related counters now needs to be tempered by the fact that the property market – one of MRCB’s key business segments – is still sluggish.
Many property players have complained that the recent Budget 2016 failed to address certain key issues dampening the market, such as the purported difficulty of first time homebuyers in gaining access to financing. Overall, cautious sentiments still prevail in the property sector.
As some analysts have noted, borrowings for these big projects may also have an impact on the company’s cash flow. Therefore, potential investors buoyed by MRCB’s spate of big wins in the last two months may also need long term staying power to realise good returns.
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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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