CIMB upgrades MRCB to 'add' on QCT deal

by **Cals** Mon 14 Apr 2014, 17:42

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Monday, 14 April 2014 11:43

KUALA LUMPUR (Apr 14): CIMB Investment Bank Bhd upgraded its call on Malaysian Resources Corporation Bhd (MRCB) to "add” from “hold” at RM1.64 and raised its target price to RM2.00 from RM1.38.

The upgrade recommendation came after MRCB announced the disposal of its asset Platinum Sentral to Quill Capita Trust (QCT) for RM750 million.

The total purchase consideration will be financed partly by RM486 million cash while the balance RM264 million will be satisfied by new issuance of QCT units.

MRCB will hold a 32% stake in QCT as a result of the new share issuance.

In addition, the company will also be acquiring a 41% stake in QCT’s real estate investment trust (REIT) management company.

“The REIT strategy is widely known given the group's plans to monetise its property assets in KL Sentral.

“However, emerging with a substantial stake in the listed QCT was a plus,” said the research house.

Through the deal, CIMB said that MRCB would be able to pare down its borrowings using the cash from the sale of Platinum Sentral and would also benefit from recurring REIT earnings from the 32% stake in QCT.

The research house said it was positive on the overall deal, adding that there could be over RM1 billion worth of property assets that could be disposed to further reduce its borrowings and for future investments.

CIMB also highlighted other potential catalysts for MRCB such as a favourable decision on the PJ Sentral merger and acquisition, the tolling of the 100%-owned Eastern Dispersal Link highway, new REIT-related deals and also tenders for the RRI Land development and construction job flows.

“In view of the likely positive newsflow in the medium term and the positive expectations of the new management's transformation move, we narrow the RNAV discount from 30% to 20%, in line with Sunway.

“Based on our revised RNAV 0f RM2.50, our target price rises from RM1.38 to RM2.00. We upgrade from “hold” to “add”,” said the research house.