Malaysian Resources Corp - REIT push, starting with Platinum Sentral Buy

We maintain our BUY call on MRCB at an unchanged fair value of RM2.20/share. This pegs the stock at a 20% discount to its estimated RNAV of RM2.75/share. MRCB announced that it has inked a Heads of Agreement (HoA) to dispose the Platinum Sentral development to Quill Capita Trust (QCT) for RM750mil.
- QCT would satisfy the purchase by cash worth RM486mil and issuance of new units of QCT at RM1.32/unit (RM264mil). We understand that QCT is to fund the cash portion via a combination of borrowings and/or new units. This could pave the way for MRCB to emerge as a substantial shareholder of QCT.
- MRCB has also entered into agreements to acquire a 40% and 1% stake each in Quill Capita Management (QCM) from Capitaland RECM Pte Ltd and Coast Capital Sdn Bhd for RM5.8mil and RM1.4mil respectively.
- QCM is the management company of Quill Capita. The deals were transacted at 10x of their audited profit after tax for FYE 31 December 2012.
- The HoAs are to be finalised within 30 business days together with a further extension of 15 days before a definitive SPA can be consummated.
- We are positive with the deal. Firstly, the disposal of Platinum Sentral into Quill Capita would help MRCB unlock the value of Platinum Sentral upfront via a REIT – and aid its de-leveraging objectives. The valuation of RM750mil is also above our estimates of ~RM680mil.
- More importantly, this could be a precursor to MRCB injecting other prime office properties into QCT, particularly within its flagship KL Sentral development. While further details are still pending, we estimate that the sale of Platinum Sentral would help reduce the group’s net debt position by ~RM350mil.
- Furthermore, the acquisition of an effective 41% stake in QCM will provide MRCB with a recurring income apart from enjoying current dividend yields of ~7% provided by QCT.
- Separately, MRCB also announced yesterday that it has inked a deal with Ekovest to dispose its 30% stake in the DUKE concession, Redeemable Preference Shares of Kesturi and Kesturi junior bonds for RM228mil.
- Further out, we expect MRCB’s share price to be underpinned by several catalytic newsflows in the
Source: AmeSecurities