Nov 18, 2015

MRCB- Private Placement Analysis

We reaffirm our BUY rating on MRCB with a fair value of RM2.12/share (35% discount to its NAV). MRCB has proposed to undertake a private placement of up to 494 mil new share or 20% of its share capital.

mrcb - A key rationale for the placement is to lift MRCB’s Bumiputera shareholding to maintain its status as a Bumiputera-controlled public listed entity. This requires 35% of its shares to be Bumiputera-owned.

- At the moment, Bumiputera shareholders account for c.28% of MRCB. Gapurna Sdn Bhd is the single largest shareholder with a 17% stake, followed by Lembaga Tahung Haji (10%).

- We understand that MRCB has until May to meet the target, with the option of seeking an extension. A bulk of the placement shares will likely to go to Bumiputerabased institutional investors.

- Notably, Gapurna has given their undertaking to take up to 120 mil or close to one-fourth of the placement shares under the maximum scenario. This is positive.

- MRCB will call for an EGM by year-end to seek shareholder’s approval for the deal before fixing the placement price; up to a 10% discount to the five-day volume weighted average price.

- While there could be some earnings dilution in the near term, such a move will open up new opportunities for MRCB to bid for select infrastructure projects or landbank under the Bumiputera category – and expedite its upward NAV trajectory.

- Consider the RM28bil Klang Valley MRT Line 2 project. Not unlike the MRT 1 project, we understand that 45%of the latter’s overall contract value will likely be tendered out to Bumiputera contractors.

- From our channel checks, other infrastructure projects that may have a targeted level of Bumiputera participation include KL 118 project and LRT 3 line. By extension, this could pave the way for MRCB to potentially bid for contracts under both the Bumiputera as well as non- Bumiputera categories.

- On our estimates, MRCB’s outstanding orderbook stands at RM4.7bil (excluding another RM607mil from fee-based contracts) with a sizeable landbank GDV of RM45bil. As things stand, the recently announced NAV-accretive deals have already catapulted MRCB to be among the largest Bumiputera-controlled contractor and property developer in Malaysia. We maintain our earnings forecast for now pending more updates from this execise.

 

Source: AmeSecurities Research – 17/11/15