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Lower gearing for MRCB after Kia Peng land sale, two more to go?

Source: https://klse.i3investor.com/servlets/ptg/1651.jsp

This is a developer listed in BURSA with a market capitalisation of over RM4 billion. It is the Project Delivery Partner (PDP) for Kwasa Damansara. Reported in many media recently. Malaysian Resources Corporation Bhd (MRCB) is selling a piece of prime lan along Jalan Kia Peng here to the Social Security Organisation (Socso) for RM323mil. The current book net book value was RM269mil based on the audited accounts for the financial year ended Dec 31, 2016. Thus, if the transaction goes through MRCB will be recording a profit of RM56mil. TheStar’s report here.  MRCB said the proceeds from the sale would be used for the group’s  working capital (including defraying expenses in connection with the proposed disposal) and property development activities within 12 months from receiving the purchase price. MRCB has many other bigger property development projects such as Bukit Jalil, Cyberjaya, PJ Sentral and Kwasa Sentral. Do refer to the image for the target prices from many analysts. Yes, there are still upside potential based on its latest closing price versus the targeted share price.

In another report in EdgeProp.my, it’s chief corporate officer Amarjit Chhina said, “We don’t want our net gearing to balloon when we fund these large developments, as [it has] in the past.”  There are also two other assets that it may also be disposing off. They are the Ascott Sentral in Kuala Lumpur and Menara Celcom.  Ascott Sentral is valued at between RM150 million and RM180 million and comprise of 157 fully furnished serviced apartments at the KL Sentral transport hub. Amarjit shared however that there are no buyers at the price that it has internally set. He said, “We are getting close, but in no rush to sell.” Menara Celcom is an officer tower in PJ Sentral with a net floor area of 450,000 sq ft. This building may be injected into the MRCB-Quill Real Estate Investment Trust or sold to institutional investors says Amarjit. Another report in TheEdge Markets here. 

Developers with a lower net gearing would have more flexibility in raising funds when needed. In a slower market, it would be dangerous to have high net gearing. By the way, having huge cash reserves do not mean the developer will not borrow funds when it needs to develop projects yeah. Many times, the cost of borrowing is still cheaper than to use internal funds and losing the ability to acquire some potential land parcels for example. Personally, I think 50 percent as a net gearing is a good number to have. My wish is to see more actions with Kwasa Damansara because it has been rather quiet of late. Perhaps the current property market situation is a main cause for things to move slower. I do not own any MRCB shares currently because it’s gearing ratio was too high for my personal liking. Moving forward, we shall see. Happy following.

written on 23 March 2018

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