Malaysian Resources Corp Bhd
(June 23, RM1.70)
Maintain buy with target price of RM1.87: MRCB plans to acquire PKNS Holdings Sdn Bhd’s 30% stake in Lot 12 of the PJ Sentral mixed-development project for RM85.3 million, after which it will effectively own 100% (including the 70% stake from Nusa Gapurna Development Sdn Bhd [NGD]) of the development.
We view this positively, given the strategic location of the land and a potential RM2.55 billion in gross development value (GDV).
In a filing with Bursa Malaysia, MRCB announced that it is entering into a settlement agreement with PKNS to resolve all disputes related to its acquisition of PJ Sentral’s Lot 12. In Feb 2013, MRCB’s acquisition of NGD’s 70% in Lot 12 hit a snag when PKNS (the owner of the other 30% stake) filed an injunction that delayed the exercise.
PKNS has now agreed to sell its stake to MRCB via a share sale agreement for RM85.3 million. PKNS has also entered into an agreement with PJ Sentral for the development rights of Tower 2, which will be constructed on land held by the latter for a total consideration of RM91.1 million.
MRCB expects these acquisitions to be completed by the third quarter of 2014. We are positive on the long-term prospects of Lot 12, given its prime location and the fact that it sits on 10 acres (4.05ha) of land with a GDV of RM2.55 billion. NGD is to inject its 70% stake into MRCB in exchange for RM30.3 million cash and 108.8 million new MRCB shares at an issue price of RM1.55 per share, effectively valuing the stake at RM199 million.
Given that two en bloc sales of office towers were concluded for a total consideration of RM489 million, the earnings may immediately be recognised upon the deal’s completion.
We expect the contribution from the en bloc sales to boost financial year 2014 ending Dec 31 (FY14) and FY15 earnings before interest and taxes by 4% and 20% respectively. Nonetheless, this will be offset slightly by the higher interest expenses of 2% and 4% for FY14 and FY15 respectively.
Furthermore, FY14 earnings per share (EPS) will be diluted by the enlarged share base of 1.76 billion shares from 1.65 billion shares. After imputing all these factors, our FY14 and FY15 EPS forecasts are revised by -4% and 16%. — RHB Research, June 23
This article first appeared in The Edge Financial Daily, on June 24, 2014.
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