MRCB falls by 11% on proposed rights issue

KUALA LUMPUR (May 18): Selling on Malaysian Resources Corp Bhd (MRCB) continues in the afternoon session. Its share price slid to a low of RM1.53 against yesterday’s closing of RM1.74. 

As at 3.45pm, the stock was trading at RM1.54, down 20 sen or 10.9%, with 57.85 million shares exchanging hands. 

The selling came after the conglomerate’s proposal on a one-for-one renounceable rights issue to pare down its borrowings and to finance refurbishment of the national sports complex in Bukit Jalil.

The cash call, which will be sweetened by free detachable warrants on one-for-five basis, will raise between RM2.17 billion and RM2.86 billion.

Affin-Hwang Capital described the rights issue as a surprising move. 

“We downgrade our call on MRCB to HOLD from Buy, as the cash call will lead to a short-term overhang, while potential upside to our RM1.85 target price has narrowed. Key risk is slower property sales,” Affin-Hwang’s analyst Loong Chee Wai wrote in the research note today.

Meanwhile, AmInvestment Bank Research analyst Azman Hussin said the proposal will have an immediate impact on reducing MRCB's gearing, which will translate into lower interest costs for the group and better earnings trajectory.

“However, we believe the substantially enlarged share base of MRCB may have a dilutive impact on the earnings per share of the group, moving forward, which will be negative for the shareholders,” said Azman.

In a research note today by CIMB Research, its analyst Sharizan Rosely said the research house acknowledges the deal’s longer-term benefits for the group’s ongoing and new property and construction ventures.

However, Sharizan noted a rights issue of this magnitude typically weighs on sentiment and could create an overhang on the share price, over the short term.

“Our ex-all fully-diluted (FD) target prices [20% discount to revalued net asset valuation (RNAV)] of RM1.39 (min scenario) and RM1.36 (max scenario) imply 1% to 3% upside (with dividend yield) to the theoretical ex-all price of RM1.37,” Sharizan added.

In the announcement to Bursa Malaysia, MRCB said the proceeds from the rights issue will be used to finance the refurbishment of the national sports complex in Bukit Jalil, besides paring down its borrowings and developing new property projects, as well as for general working capital.

MRCB plans to issue up to 2.86 billion in rights shares, together with up to 571.34 million free detachable warrants. — theedgemarkets.com

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