MRCB ( AmResearch) hold; fair value RM2.40

New landbank in Setapak

• It was announced on Bursa Malaysia yesterday that Malaysian Resources Corporation (MRCB) has proposed to acquire three parcels of leasehold land measuring a combined 27.4 acres (1.19 million sf) in Setapak, Kuala Lumpur, for RM110mil (RM92psf).

• This is done via a share sales agreement (SSA) with the shareholders of 59 Inc Sdn Bhd which owns the right to the land. We understand that 59 Inc has been granted conditional approval to be rightful owner of the said parcels of land provided that the Land Office is paid RM60.8mil for the release of the land. We understand the land is located in Setapak Jaya and sits very close to the Duta Ulu Kelang Highway (DUKE) exit.

• We gather that MRCB is looking at developing a mixed commercial/residential project on the said parcels of land with an estimated GDV of RM1.5bil with construction to start in FY12F. Nonetheless, details are sketchy at this juncture especially on the development mix although we suspect the target market would be a medium to medium-high segment.

• This is positive given its landbank in KL Sentral is depleting with only about 12 acres left for development with a remaining GDV of close to RM6bil. We estimate the new Setapak development would only add about 4% to our SOP – assuming a profit margin of 23%-25% to be developed over eight years.

• We expect earnings to jump by about 5%-8% for FY12F-FY13F. Nonetheless, we have not factored in anything given the land deal has not been completed.

• On the flipside, the group is targeting RM1bil in order book replenishment in FY11F. MRCB has submitted its bid for civil works on the expansion of LRT lines for package A and B worth some RM1.6bil in total. It is also expecting renewal on on-going environmental projects in Kuala Sg Pahang and Perai worth about RM1bil.

• We reaffirm our HOLD rating on MRCB with our fair value unchanged at RM2.40/share based on a 15% discount to our sum-of-parts-derived value of RM2.80/share.

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