Malaysian Resources Corp Bhd (July 4, RM2.22)
Maintain trading buy at RM2.20 with fair value of RM2.58: Last Friday, Prime Minister Datuk Seri Najib Razak launched the much anticipated River of Life (ROL) project, which aims to revitalise and transform Kuala Lumpur's dirty rivers. The RM4 billion project is divided into three parts — river cleaning, beautification and land development along the river.
In late February 2011, MRCB announced to Bursa Malaysia that the Ekovest–MRCB joint venture had received a letter of intent (LoI) from the government for the ROL project.
The LoI indicates the intention of the government to obtain the services of the Ekovest-MRCB JV as the project delivery partner (PDP) for the Entry Point Project (EPP) identified in the Greater Kuala Lumpur/Klang Valley National Key Economic Area (NKEA) under the Economic Transformation Programme (ETP). In late March, MRCB entered into an agreement with Ekovest to set up a 40:60 JV company known as KL Bund Sdn Bhd to undertake the ROL project.
The river cleaning project will involve a 110km stretch of the Klang river basin with the target to improve water quality from its current Class III to Class IIB, which would make the river suitable for recreational activities by 2020. The river beautification project will involve a 10.7km stretch of riverbank from Titiwangsa to Brickfields in Kuala Lumpur.
It was reported that a sum of RM3 billion has been allocated for the clean-up with the balance for beautification. For the river beautification project, Kuala Lumpur City Hall held a River of Life master plan competition that ended on June 15. It has short-listed five of the 22 entries. Three are from international companies with two from local planning companies.
The master plans are currently available for the public to view and vote on. A panel of expert jurors has been appointed to assess the plans. The winning plan will be based on a combination of votes from the public (20%) and the jurors (80%) with the winning proposal to be announced on July 30.
As for the land development along the river, potential government land will be identified and tendered out to private developers through competitive bidding.
As we have yet to understand the exact scope of MRCB's involvement in the ROL, we are unable to estimate the project's financial impact of the project on MRCB. Nevertheless, we believe the project will provide a sizeable future earnings enhancement to MRCB. We maintain our "trading buy" recommendation at an unchanged fair value of RM2.58 based on sum-of-parts valuation.
Apart from being PDP for the project, with its expertise and track record in river cleaning and rehabilitation projects, we do not rule out the possibility of MRCB being appointed as one of the contractors to undertake the river cleaning project. — OSK Research, July 4
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