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This article first appeared in The Edge Financial Daily on July 15, 2019

Magna Prima Bhd
(July 12, 95 sen)
Maintain underperform with an unchanged target price (TP) of 74 sen:
Magna Prima Bhd announced that it had signed a memorandum of understanding (MoU) with PowerChina Construction Group Ltd to establish a consortium to collaborate and bid for engineering, procurement and construction (EPC) work for one of Permodalan Nasional Bhd’s (PNB) projects known as Phase Three development.

 

While there are limited details on the consortium and PNB’s Phase Three project, we believe Magna would control up to 51% of the consortium while PowerChina Construction holds the remaining 49%. We reckon the Phase Three project could be part of the development of Merdeka 118 as there are not many projects from PNB with three phases of development. Hence, we believe that if it is part of Merdeka 118, and the potential contract value from this Phase 3 project could range between RM500 million and RM1 billion as Merdeka 118’s previous contract — the shopping mall component awarded to a joint venture between WCT Holdings Bhd and TSR Capital Bhd — was worth about RM680 million. We are positive on the MoU as it could help Magna to diversify from its property development business which has been lacklustre due to tough property market conditions.

Magna’s focus will continue to be on clearing its existing inventory of RM254.4 million at cost in Boulevard Business Park, Jalan Kuching (both in Kuala Lumpur) and Desa Mentari (in Petaling Jaya) projects. The group aims to reopen booking for The View Residences in Shah Alam in the second half of 2019 by offering better sales package to encourage better response. Apart from these projects, we believe that earnings could be boosted if Magna monetise its 2.6 acres (1.05ha) along Jalan Ampang, valued at about RM400 million, which has not been imputed into our estimates.

There are no changes to our financial years 2019 to 2020 earnings as we did not factor in any contract replenishments.

Our TP of 74 sen is based on a property revalued net asset valuation discount of 70%, which implies a 59% discount (at historical trough level) to a fully-diluted sum-of-the-parts of RM1.79 due to the volatility in earnings as shown in recent quarterly results.

Risks to our call include higher-than-expected margins or property sales, lower-than-expected administrative costs, changes in real estate policies, and changes in lending environment. — Kenanga Research, July 12

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