MRCB’s Bukit Jalil development JV sealed

Malaysian Resources Corp Bhd (June 1, RM1.38)

Maintain buy with an unchanged fair value of RM1.89: Malaysian Resources Corp Bhd’s (MRCB) 85%-owned Rukun Juang Sdn Bhd (RJSB), Tanjung Wibawa Sdn Bhd (TWSB), a wholly-owned subsidiary of the Employees Provident Fund (EPF), and Bukit Jalil Sentral Property Sdn Bhd (Bukit Jalil Sentral) had on Wednesday entered into a subscription and shareholders’ agreement of which: i) RJSB and TWSB will co-invest in a special purpose company, namely Bukit Jalil Sentral, to jointly develop the land; and ii) the proposed disposal by RJSB of the land to the joint-venture company (JV Co) for an aggregated consideration of up to RM1.43 billion (RM430 per square foot). RJSB and TWSB will subscribe for new ordinary shares and new redeemable preference shares (RPS) – class A in the JV Co.

In turn, the JV Co shall appoint a subsidiary of MRCB to be the management contractor for the design and construction of the future development to be carried out on the lands, subject to a management fee. RJSB will then procure the management contractor to subscribe for 1,000 new RPS – class B (RPS–B) in the JV Co at an issue price of RM1 per RPS–B.

The land is three parcels of leasehold land within the Bukit Jalil area to the north of the Bukit Jalil National Sports Complex. It is are proposed that the land be developed as an integrated development comprising commercial and residential properties, including service apartments, shop offices, office towers, retail malls and a hotel, with a total gross development value of RM21 billion. The development is expected to commence in 2019, with a completion target of 2038.

We are positive on the proposed JV. It would allow MRCB to carry out the large-scale development with the support and credibility of the EPF. It will also reduce MRCB’s burden of having to finance the entire project by itself, and free up its cash to allow it to undertake other development projects it has in its stable. Furthermore, MRCB will still be able to enjoy the future profit from the development from its effective 17% stake in the JV Co, and benefit from a steady income stream in the form of management contractor fees arising from the management contractor agreement. — AmInvestment Bank, June 1

This article first appeared in The Edge Financial Daily, on June 2, 2017.

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