Malaysian Resources Corp Bhd
(May 5, RM1.33)
Maintain buy with a target price of RM2.30: We reiterate our “buy” call on Malaysian Resources Corp Bhd (MRCB) with an unchanged fair value of RM2.30 per share.This pegs the stock at a 20% discount to its estimated net asset value (NAV). 

Over the weekend, The Edge weekly highlighted that Quill Capita Trust (QCT) will be a platform for MRCB to further its monetisation agenda. This follows the completion of its sale of Platinum Sentral to QCT last month. 

Recall that MRCB is to receive RM740 million for Platinum Sentral, whereby RM476 million will be paid in cash. The balance RM264 million will be satisfied via new QCT shares which will result in MRCB ending up with a 30% stake in QCT. 

More importantly, the report noted that beyond Platinum Sentral, MRCB could be keen to engage in another similar deal to monetise its matured property assets. The same report indicated that other property assets under MRCB’s stable that could be injected into QCT are the Shell Tower and Ascott Residences, which are reportedly worth over RM900 million cumulatively. 

We believe that more asset injections into QCT will free up existing debt and increase cash flow streams via dividends from the trust (to be renamed MRCB-Quill real estate investment trust or REIT). More importantly, MRCB’s news flow is picking up. 

Last month, MRCB confirmed that it submitted a bid to acquire the French Embassy land. The tender was submitted on Feb 12, 2015. 

In our initiation report on QCT on April 23 (titled “Compelling acquisitive growth story”), our REIT analyst opined that QCT has been given the right of first refusal to purchase properties owned by MRCB and the Quill group. 

The collective value of RM1.8 billion (for five assets) would see its total asset value increase by 113% to RM3.4 billion. As such, we believe QCT would be an ideal vehicle for MRCB to house its prime commercial assets within KL Sentral. In fact, QCT’s asset size has almost doubled to RM1.6 billion just via the injection of Platinum Sentral. 

We continue to like MRCB for its transformational moves to become a property-centric group; its deleveraging efforts should be further boosted by more asset injections into QCT. 

We retain our estimates for now. With MRCB also taking up a 41% stake in Quill Capita Management Sdn Bhd, this suggests more headroom for NAV upside and deleveraging benefits. — AmResearch Sdn Bhd, May 5

This article first appeared in The Edge Financial Daily, on May 6, 2015.