Company Focus MRCB explores monetisation options

by **Cals** Sat 04 Jan 2014, 01:28

Company Focus MRCB explores monetisation options

Business & Markets 2013

Written by Afiq Isa of theedgemalaysia.com

Friday, 03 January 2014 17:17

MALAYSIAN RESOURCES CORP BHD (MRCB) has gone through an eventful and somewhat turbulent year. The government-linked conglomerate made the headlines following a RM729 million merger with Nusa Gapurna Sdn Bhd (NGSB) in August, which saw NGSB chief Datuk Mohamad Salim Fateh Din emerge as MRCB’s new CEO a month later.

However, the deal has seen the group’s newly acquired subsidiaries add to its debt obligations. That has raised concerns among investors, including the possibility of tighter cash flow.

Apart from that, with the new management taking over, there is some uncertainty about the group’s prospects.

As a result, MRCB’s shares have succumbed to selling pressure, dipping to a 10-month low of RM1.23 on Dec 23 or down nearly 20% year to date.

Mohamad Salim is the second largest shareholder of MRCB via Gapurna Sdn Bhd’s 12.51% stake, after the Employees Provident Fund, which controls a 38.87% stake while Lembaga Tabung Haji has 8.85% equity interest.

Acknowledging investors’ concerns, MRCB group chief operating officer Imran Salim tells The Edge that the diversified group has mapped out plans to monetise its assets and make MRCB a more property-centric entity.

Asset-laden MRCB is in the middle of working out a rationalisation exercise to find sources of recurring income and unlock value, says Imran, who is the son of Mohamad Salim.

“The board has deliberated the potential monetisation of assets over the past few months. There are many ways to do this, such as an outright disposal or restructuring the assets so that we can continue to receive income from them,” he explains.

To lighten the group’s debt burden, Imran, 32, says MRCB is studying a possible real estate investment trust (REIT), which would encompass a large portion of its property assets in the Klang Valley.

“We have quality income-generating assets and we are getting good yields out of them. If it happens, we would prefer to go to the market with at least a RM3 billion REIT, which is sizeable and possesses enough visibility to attract foreign investors,” he says.

Such a listing would put MRCB in the top tier of publicly listed REITs in the country in terms of assets. The other big players include KLCC REIT (RM10.83 billion), Sunway REIT (RM3.6 billion) and Pavilion REIT (RM3.76 billion).

However, MRCB’s closest comparison would be with IGB Corp Bhd, the properties of which are concentrated in Mid Valley City. MRCB, meanwhile, owns KL Sentral and most of the surrounding developments.

In a Dec 24 sum-of-parts valuation done by Hong Leong Investment Bank’s research unit, the group’s property assets are collectively valued at RM2.24 billion, which translates into RM1.35 per MRCB share.

By comparison, IGB Corp’s top seven major properties in the Klang Valley (excluding assets held under IGB REIT Bhd) have a combined net book value exceeding RM1.5 billion.

IGB Corp’s shares are currently trading at a price-to-book value of 0.9 times.

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Plans for Platinum Sentral

MRCB made a surprising turnabout in early December, ditching a plans to sell Platinum Sentral — a key property asset in KL Sentral. This was contrary to a Nov 29 analyst briefing when the company had said it intended to dispose of Platinum Sentral to support its earnings target through capital gains.

“The board never actually made a decision [to sell Platinum Sentral]. We appointed an agent, but that did not necessarily mean we wanted to sell the asset,” Imran explains.

He clarifies that Platinum Sentral never went to the tender stage and that the agent’s role was more to value the asset.

“If we intend to sell or form a REIT, they would help us with the revaluation of assets. We have our own valuation, but we also want to know what the market sentiment on the building is. We were testing the waters, so to speak,” he says.

Ongoing rationalisation exercise

Imran says the group’s ongoing rationalisation exercise, which involves earmarking assets for disposal, may take up to a year.

“It is very simple … we are looking into managing the balance sheet by reducing overheads and our debt. We start by identifying which assets to keep and which to sell, which will take some time, given MRCB’s considerable size.”

With new property projects in the pipeline, such as St Regis Hotel and Residences and the Q Sentral office tower, the conglomerate is steadily increasing its profile as a prominent property player.

The two projects have an estimated gross development value of RM1.27 billion and RM1.23 billion respectively.

In the first nine months ended Sept 30, 2013, property development accounted for a third of MRCB’s revenue. It is worth noting that three of its new subsidiaries — Gapurna Land Sdn Bhd, Gapurna Builders Sdn Bhd and Puncak Wangi Sdn Bhd — are involved in property development in the Klang Valley.

“We are definitely property-focused. Following the acquisition, Nusa Gapurna’s land assets fit MRCB’s criteria as an urban developer, which is more focused on small but highly valued pieces of land,” Imran says.

While the conglomerate has big plans for its newly replenished landbank, there is still the matter of financing these projects. MRCB has begun divesting its assets in earnest with the sale of subsidiary GTC Global Sdn Bhd to Telekom Malaysia Bhd in November, which will net RM30.15 million for the group.

“GTC had a great business, but it was a non-core asset to us. We are also assessing our shareholding in companies in which we are not the majority shareholder, which may entail a disposal to unlock capital,” he says.

MRCB’s property development activities look set to one day dwarf the earnings contribution from MRCB’s construction works. Its engineering and construction division contributed more than 50% to total group revenue in the first nine months ended Sept 30.

The division’s outstanding order book stands at RM1.33 billion, which pales in comparison to the potential gains that it can achieve in property development, where a single project can fetch in excess of RM1 billion in GDV. The profit margin also tends to be wider.
According to Imran, the monetisation of MRCB’s assets will further the group’s growing ambition to be a leading property player. “At the moment, all options are still on the table,” he says.

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This story first appeared in The Edge Malaysia Weekly Edition, on December 30, 2013 - January 05, 2014.