AmWatch - MRCB : Signs agreement for disposal of Platinum Sentral BUY, 11 Apr 2014

STOCK FOCUS OF THE DAY

MRCB : Signs agreement for disposal of Platinum Sentral              BUY

We maintain our BUY recommendation on MRCB with an unchanged fair value of RM2.20/share. This pegs the stock at a 20% discount to its RNAV.

MRCB announced that it has entered into a conditional sale and purchase agreement for the disposal of Platinum Sentral to Quill Capita Trust (QCT) for RM750mil. The acquisition will be satisfied via RM486mil in cash, and 206 mil new units in QCT for RM264mil at RM1.28/unit. The building’s office space (~450k NLA) – located within MRCB’s prime KL Sentral integrated development – is fully tenanted. The retail portion is about 77% occupied.

Concurrently, MRCB also signed share sale agreements with CapitaLand RECEM Pte Ltd (CRPL) and Coast Capital Sdn Bhd (CCSB) to acquire 40% and 1% of their respective interest in Quill Capital Management (QCM), the management company of QCT for RM6mil. We understand that MRCB will utilise RM380mil from the proceeds of RM486mil to pare down some of its debts. With a 31% stake in QCT after the asset injection, we understand that MRCB will receive ~RM14mil in dividend income for FY15F.

QCT – which will also apply for a name change to MRCB-Quill REIT – will see its asset base double to RM1.6bil.  We make no changes to our earnings recommendation for now pending a finalisation of the two deals, which is set to be completed by 3Q 2014. More importantly, the deals with QCT could herald the start of more injections of MRCB’s prime commercial assets in KL Sentral into QCT.

Together with the proposed sale of its 30% stake in Duke Highway for RM228mil, we believe that MRCB could be on track to pare down its net debt by ~RM1bil in the coming months. This puts MRCB on a solid platform to transform into a property-centric group with a stronger balance sheet.

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