This article first appeared in The Edge Financial Daily on June 20, 2017

Malaysian Resources Corp Bhd
(June 19, RM1.38)
Retain hold with an unchanged target price of RM1.42: Malaysian Resources Corp Bhd (MRCB) announced that it is buying three parcels of land in Kuala Lumpur city centre for RM336 million via a sale and purchase agreement with the Kuala Lumpur mayor.

The land, measuring 10.6 acres (4.29ha), comprises two freehold plots and one leasehold plot. The acquisition is via Metro Spectacular Sdn Bhd, a joint venture (JV) that is 51%-owned by MRCB Land Sdn Bhd and 49%-owned by URP City Sdn Bhd. The acquisition is to be completed in the fourth quarter ending Dec 31, 2017 (4QFY17).

This move is in line with the group’s longer-term strategy to increase its urban land bank that would benefit from public transport infrastructure. We understand that the location of the land is considered attractive, considering the scarcity of prime land in Kuala Lumpur for sizeable commercial developments. However, details of the development plans are unavailable at this juncture.

The total acquisition cost translates into RM765.4 psf which seems fair considering the prime location and distance to the city centre. The land is located 4km north of Kuala Lumpur with main access roads including Jalan Putra, Jalan Tun Ismail, Jalan Tun Razak and Jalan Kuching.

As at the end of 1QFY17, MRCB’s total land bank stood at 399.5 acres, of which 61% (245 acres) is transport-oriented developments including Kuala Lumpur Sentral, PJ Sentral, Kwasa Sentral and Cyberjaya City Centre. Commercial developments make up 17% of total land bank, while the balance is residential projects. Total outstanding gross development value is RM49 billion to be recognised over the next five to 10 years.

This new land acquisition would raise its total land bank by 3% and have minimal impact on revalued net asset valuation. We believe the new 10.6-acre land could be earmarked for a mixed development, to be rolled out in stages over three to seven years.

While this land acquisition comes hot on the heels of the RM2.9 billion rights issue announced in mid-May, where RM233 million to RM916 million (11% to 32% of total rights proceeds) have been earmarked for property development and construction, we understand from the company that this land purchase will not be funded via these rights issue proceeds.

Based on the group’s 51% JV share, MRCB would need to fork out RM171.1 million which can be supported by its end of 1QFY17 cash balance of RM672 million. The rights issue, on the other hand, will be completed in 3QFY17. — CIMB Research, June 16