Expect stronger performance from MRCB

Malaysian Resources Corp Bhd (July 6, RM2.30)
Maintain neutral at RM2.22 with revised target price of RM2.54 (from RM2.46):
MRCB announced that its 70% subsidiary Country Annexe Sdn Bhd (CASB) entered into a privatisation agreement on Tuesday with the government and Syarikat Tanah dan Harta Sdn Bhd (Hartanah) for three projects in Brickfields, Kuala Lumpur: (i) The upgrading of Jalan Tun Sambanthan, part of the Little India project;

(ii) Construction of The Pines Bazaar, a three-storey building consisting of office space, 28 stalls and 140 parking bays on Lot 172; and (iii) The Ang Seng Development which involves the construction of 212 units of new government Class F quarters near Jalan Ang Seng to replace the quarters in Jalan Rozario.

In exchange for funding the construction cost of the projects, CASB will be given two pieces of land at the intersection of Lorong Chan Ah Tong and Jalan Tun Sambanthan, known as Lot 349, measuring 153,891 sq ft and Lot 266, measuring approximately 60,737 sq ft.

Upon completion of CASB's obligations, it will be entitled to take vacant possession of the land, which is valued at approximately RM601 per sq ft. CASB plans for a mixed development worth RM1 billion.

At this juncture, we are maintaining our forecast for MRCB as details of the mixed development remain sketchy. We maintain our "neutral" recommendation with higher target price of RM2.54 based on sum-of-parts (SOP) valuation. Moving forward, we believe MRCB will be one of the beneficiaries of the Economic Transformation Programme (ETP) projects. Further clarity over the project development value of the "River of Life" project and MRCB's actual role in the Sungai Buloh Rubber Research Institute Malaysia land redevelopment will be the catalysts for any upside revision of the SOP valuation. We also envisage more land banking in FY11 to ensure a sustainable growth of the property segment in the medium to longer term. — MIDF Research, July 6

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