A mutual termination of the 100%-owned Eastern Dispersal Link (EDL) concession appears under way
KUALA LUMPUR: CIMB Equities Research is maintaining its Add for Malaysian Resources Corporation Bhd
(MRCB) with an unchanged target price of RM1.35, which is a 10% discount to its realised net asset value (RNAV).
It said on Monday that the progress in MRCB’s venture in Kwasa Damansara will be a longer-term catalyst.
Other key potential catalysts are job wins and the sale of Eastern Dispersal Link (EDL) highway. Key downside risks are weak job wins and property sales.
To recap, MRCB’s unit MRCB Land Sdn Bhd was appointed management contractor for the plot of land currently identified as MX1, the proposed town centre of the Kwasa Damansara township.
The appointment was made by Kwasa Sentral Sdn Bhd (KSSB), a unit jointly owned by MRCB (with a 70% stake) and the Employees Provident Fund (EPF; 30% stake). This contract requires shareholders’ approval within 12 months.
The provisional contract value comes to RM7.5bil and will be spread out over 12 yearsfrom 2018 to 2030.
The development plan consists of: i) six blocks of office towers, ii) two hotel blocks, iii) one block of wellness centre, iv) three retail blocks, and v) 15 residential blocks and recreational facilities. The total revised GDV of RM10.5bil (RM8bil previously) is divided into 60% share of commercial developments and 40% residential.
Under the management contract, MRCB Land will be responsible for the following: i) constructing financial models for the development’s initial and updated feasibility studies, ii) sales and marketing consultancy service, iii) project management services and obtaining all required authority and statutory approvals, and iv) engineering, procurement, construction and commissioning (EPCC) works.
CIMB Research said of the RM7.5bil management contract value, RM6bil or 81% has been set aside for EPCC works.
MRCB Land will appoint the group’s construction arm MRCB Builders Sdn Bhd or any of MRCB’s subsidiaries as the contractor for one or more plots. This is only a provisional figure and may vary when the development is firmed up.
“This news is deemed as a related-party transaction (RPT). We estimate that the RM7.5bil project management contract will contribute RM22mil in net profit per annum over 12 years, based on the 5% fees and MRCB’s 70% stake in KSSB, or 15-17% of our FY18-20F EPS.
“The EPF will pocket the balance of RM9.3mil per annum. Potential property sales from RM10.5bn GDV (10 phases) will only come in beyond our forecast period as major site works have yet to commence,” it said.
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