HDBSVR ups MRCB target price to RM2.25

KUALA LUMPUR: Hwang DBS Vickers Research has raised its target price for Malaysian Resources Corp Bhd (MRCB) to RM2.25 adding that the Employees Provident Fund may be forced to make a higher offer if it is serious in bringing its stake to 50%.

It said on Monday, April 5 that it believes the Prime Minister's recent statement on the Government and the EPF forming a JV for the 3,400 acres of Rubber Research Institute Malaysia (RRIM) Land where MRCB will likely be the master developer has thwarted EPF’s GO at RM1.50/share.

"We read EPF’s market moves [buying shares post ex-rights, subscribing heavily for extra rights shares and bringing its stake to 41.5% post GO] as it being serious in seeing this conditional take over materialise and it solidifying its shareholding prior to a material announcement.

"At a higher offer of RM1.80/share, the additional 8.5% to raise its stake to 50% will cost MRCB RM209 million. With financial obligations to its contributors, we assume EPF sees further deep embedded value in MRCB," it said.

Hwang DBS Vickers Research also provided a scenario analysis on it clinching different land deals, which are all mutually exclusive.

In all scenarios, it assumed there is 50:50 sharing with EPF. The most accretive deal, in its view, is the 3,400 RRIM land in Sungei Buloh given its sheer size, potential pricing power and also expectations of a LRT station.

In Scenario 4 (RRIM), the research house assumes MRCB clinches just one-sixth of the development portion with a 50% stake, a plot ratio of just 3x and ASP of RM300 psf will translate into a total GDV of RM17 billion and raise our SOP value by 50% to RM2.70/share.

"We estimate break even at RM243 psf based on land cost of RM10 psf and construction costs of RM180 psf. Another likely deal, is the additional 20 to 30 acres of land in KL Sentral," it said

"We raise our PT to RM2.25/share assuming a 50% probability from Scenario 4 which has yet to take into account any fee income or construction work from its master developer status. Even if a higher offer doesn’t materialise, MRCB is transforming into a credible GLC-linked contractor/developer with strong earnings support -- three-year EPS CAGR of 40% anchored by higher progress billings at KL Sentral and external orderbook of RM1.5 billion. Reiterate BUY," it said. -- Hwang DBS Vickers Research