PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

V is it Note
21 July 2010
MARKET DATELINE

M’sian Resources Corp Share Price

Fair Value
:
:
RM1.64
RM1.96
Actively “Assisting” EPF In Drawing Up Masterplan Recom : Trading Buy
(Maintained)
For RRI Land

Table 1 : Investment Statistics (MRCB; Code: 1651) Bloomberg: MRC MK

Net Net
FYE Turnover Profit# EPS# Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 921.6 34.6 3.8 nm 45.4 - (5.0) 2.2 5.2 1.2 0.6
2010f 1,138.7 81.4 6.0 56.5 27.4 5.0 18.3 1.8 6.5 0.5 0.7
2011f 1,291.7 99.2 7.3 21.8 22.5 6.0 16.5 1.6 7.3 0.4 0.7
2012f 1,339.8 103.9 7.6 4.7 21.5 6.0 16.6 1.5 7.1 0.3 0.7
Main Market Listing /Non-Trustee Stock/Syariah-Approved Stock By The SC #Excluding EI * Consensus Based On IBES

♦ Actively “assisting” EPF in RRI land. MRCB said that it is actively

Issued Capital (m shares) 1,371.1
“assisting” parent EPF in drawing up the masterplan for the RRI land.
Market Cap (RMm) 2,249.5
However, MRCB qualified its statement by saying that “EPF is also assisted
Daily Trading Vol (m shs) 7.0
by other parties”. MRCB said that given the time and efforts it has already 52wk Price Range (RM) 1.13-1.68
put into the project, it is hopeful that it will be rewarded with “a more Major Shareholders: (%)
significant role (vis-à-vis other property players)” in the project. Our belief EPF 41.9
is that MRCB will rank a level above other developers in the project.
♦ Race for Cochrane land wide open now. On a less positive note, the
race for the 150-acre Federal land along Jalan Cochrane has now been
FYE Dec FY10 FY11 FY12
thrown wide open as it appears that the Government may auction the land,
EPS Revision (%) -16 -5 -8
vis-à-vis the market’s belief that MRCB would be hand-picked to develop it.
Var to Cons (%) +20 +21 +27
MRCB is cool about not securing the land as it can always look for
“something else” including other Federal and private land parcels in KL, as Share Price Chart
well as potentially a joint role with the party that will be awarded the
redevelopment of the 245-acre Batu Cantonment army base along Jalan
Ipoh, KL.
♦ KL Sentral progresses well. The key KL Sentral components currently
under construction, i.e. CIMB Tower (Lot A), Nu Sentral, hotel & office
towers (Lot G), GSB Sentral (Lot 348) and KL Sentral Park (Lot E) are
progressing well that will help to underpin MRCB’s profits over the short
term.
♦ Forecasts. FY12/10-12 net profit forecasts are reduced by 5-16% largely Relative Performance To FBM KLCI
to reflect slower profit recognition from certain external construction jobs
as well as slower construction orderbook replenishment. MRCB
♦ Risks. The risks include: (1) New construction contracts secured in
FY12/10 coming in below our target of RM500m p.a.; and (2) Rising input FBM KLCI
costs.
♦ Maintain Trading Buy. We are upbeat on the construction sector as we
foresee construction stocks to generally outperform the market in 2H2010,
buoyed by news flow, particularly, from: (1) The RM36bn KL MRT project;
(2) The RM7bn Ampang and Kelana Jaya LRT line extension project; and
(3) Federal land deals. We believe MRCB is likely to be involved in the
redevelopment of the 3,300-acre RRI land in Sungai Buloh given that its
parent EPF has been hand-picked by the Government to carry out the
project, while for the Ampang and Kelana Jaya LRT line extension project,
MRCB has been pre-qualified to bid as main contractor as well as Joshua CY Ng
segmental box girder sub-contractor. Indicative fair value is reduced by (603) 92802151
7% from RM2.10 to RM1.96 based on “sum of parts”, largely to reflect the joshuang@rhb.com.my
downgrade in our earnings forecasts.

Page 1 of 6
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 Actively “Assisting” EPF In Drawing Up Masterplan For RRI Land

♦ Highlights. The key highlights from our recent meeting with MRCB are:
1. MRCB is actively “assisting” parent Employees Provident Fund (EPF) in drawing up the masterplan for the
3,300-acre Rubber Research Institutue (RRI) land in Sungai Buloh;
2. The race for the 150-acre Federal land along Jalan Cochrane has now been thrown wide open as it appears that
the Government may auction the land; and
3. The key KL Sentral components currently under construction, i.e. CIMB Tower (Lot A), Nu Sentral, hotel & office
towers (Lot G), GSB Sentral (Lot 348) and KL Sentral Park (Lot E) are progressing well.

♦ Actively “assisting” EPF in RRI land. MRCB said that it is actively “assisting” parent EPF in drawing up the
masterplan for the RRI land. However, MRCB qualified its statement by saying that “EPF is also assisted by other
parties”. To recap, the PM during Invest Malaysia 2010 held in March this year announced that EPF will be
entrusted by the Government to redevelop the 3,300 acres land in Sungai Buloh with an estimated GDV of RM10bn.
MRCB said that given the time and efforts it has already put into the project, it is hopeful that it will be rewarded
with “a more significant role (vis-à-vis other property players)” in the project. Our belief is that MRCB will rank a
level above other developers in the project. As the credibility of the PM’s “Invest Malaysia goodies” is at stake here,
MRCB believes that there is certainly some pressure to expedite the project to ensure that the ground-breaking will
take place and earthwork will start “before the next Invest Malaysia”.

♦ Race for Cochrane land wide open now. On a less positive note, the race for the 150-acre Federal land along
Jalan Cochrane has now been thrown wide open as it appears that the Government may auction the land, vis-à-vis
the market’s belief that MRCB would be hand-picked to develop it. We do acknowledge that the market did, to a
certain extent, jump the gun on this “story”. To recap, during RHBRI’s GLC Day in January this year, MRCB did say
that “it is up to the Government to decide on which entity it will award the land to”, and at that point, “the
Government remains very tight-lipped”. The land is worth about RM800m based on the going rate of RM100-150
psf, translating to an estimated GDV of RM5bn if we are to apply the rule of thumb that land cost is equivalent to
10-20% of total GDV. MRCB is cool about not securing the land as it can always look for “something else” including
other Federal and private land parcels in KL, as well as potentially a joint role with the party that will be awarded
the redevelopment of the 245-acre Batu Cantonment army base along Jalan Ipoh, KL, rumoured to be the Armed
Force Fund Board or LTAT (see Table 2).

Table 2: Federal Land Parcels To Be Re-developed

Land Area GDV Potential Master Developer(s)
(acres) (RMm)
Matrade, Jalan Duta 65 15,000 Naza TTDI (Awarded)
Rubber Research Institute, Sungai Buloh 3,300 10,000 EPF, MRCB
Royal Malaysian Air Force, Sungai Besi 400 Multi-billion 1Malaysia Development Bhd (1MDB), Qatar Investment
Authority
Jalan Cochrane 150 Multi-billion To be auctioned
Dataran Perdana, Jalan Davis 85 Multi-billion 1MDB, Mubadala
Batu Cantonment army base, Jalan Ipoh, 245 - 1MDB, LTAT (Boustead)
KL
KLCC, Jalan Ampang & U-Thant vicinity - - MRCB
Source: Various news reports

♦ KL Sentral progresses well. The key KL Sentral components currently under construction, i.e. CIMB Tower (Lot
A), Nu Sentral, hotel & office towers (Lot G), GSB Sentral (Lot 348) and KL Sentral Park (Lot E) are progressing
well, as illustrated in their fast depleting outstanding works (see Chart 1). These internal jobs, coupled with
outstanding external construction jobs amounting to RM1.2bn, will underpin MRCB’s profits over the short term (see
Table 3). For new construction jobs, MRCB’s focus is on: (1) Environmental projects believed to be worth RM300m
under the 10th Malaysia Plan (10MP); (2) Road projects under the 10MP; (3) The RM7bn Ampang and Kelana Jaya
LRT extension project, of which MRCB has been pre-qualified to bid as main contractor as well as segmental box
girder sub-contractor; and (4) Transmission projects in East Malaysia.
♦ Forecasts. FY12/10-12 net profit forecasts are reduced by 5-16% largely to reflect slower profit recognition from
certain external construction jobs as well as slower construction orderbook replenishment.

♦ Risks. The risks include: (1) New construction contracts secured in FY12/10 coming in below our target of RM500m
p.a.; and (2) Rising input costs.

Page 2 of 6

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 C ha rt 1: C o ns t ruc t io n P ro gre s s ( O ut s t a nding V a lue )

692
700 664
644

600

500

400 370
351
314 300 282
300
232
214 204
200

100
31Dec 2008 31Oct 2009 31M ay 2010
A s A t E nd

CIM B To wer (Lo t A ) Nu Sentral, ho tel & o ffice to wers (Lo t G)

GB S Sentral (Lo t 348) KL Sentral P ark (Lo t E)

♦ Maintain Trading Buy. We are upbeat on the construction sector as we foresee construction stocks to generally
outperform the market in 2H2010, buoyed by news flow, particularly, from: (1) The RM36bn KL MRT project; (2)
The RM7bn Ampang and Kelana Jaya LRT line extension project; and (3) Federal land deals. We believe MRCB is
likely to be involved in the redevelopment of the 3,300-acre RRI land in Sungai Buloh given that its parent EPF has
been hand-picked by the Government to carry out the project, while for the Ampang and Kelana Jaya LRT line
extension project, MRCB has been pre-qualified to bid as main contractor as well as segmental box girder sub-
contractor. Indicative fair value is reduced by 7% from RM2.10 to RM1.96 based on “sum of parts” (see Table 5),
largely to reflect the downgrade in our earnings forecasts.

Table 3: Outstanding Construction Orderbook

Project Value (RMm)
External
Eastern Dispersal Link (EDL), Johor 386
Bus terminal in Penang Sentral 300
Permai Psychiatric Hospital, Johor 95
Sabah Medical Centre 76
Selbourne 2, Shah Alam 70
Rehabilitation of Gaya Bangsar 66
Various transmission jobs 63
Various environmental projects 61
Upgrading of KL Sentral’s road network 34
Others 22
Total 1,172
Internal
Building work: Lot A 204
Building work: Lot G 644
Building work: Lot 348 300
Building work: Lot E 282
Total 1,431
Source: Company, RHBRI

Page 3 of 6

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Table 4: Outstanding KL Sentral Projects
Project Location GDV Project Period
(RMm)
1. CIMB tower Lot A 404 On-going, completion 2011
2. MRCB-KFH-Quill office suites Lot B 1,015 2010-2014
3. MRCB-CMY’s St Regis Hotel & Residences Lot C 1,500 2010-2014
4. MRCB-CapitaLand-Quill condos Lot D 1,200 2010-2014
5. Low-rise Business Park Sentral Lot E 602 On-going, completion 2011
6. MRCB-Pelaburan Hartanah Bumiputera Parcels A&B, Lot G 1,434 On-going, completion 2012
retail mall & office tower
7. MRCB-Aseana hotel & office towers Parcels C&D, Lot G 914 On-going, completion 2012
8. MRCB-Gapurna office & service apartments Lot 348 914 On-going, completion 2012
(348 Sentral)
9. Six office towers Lot F 2,300 2013-2016
Total 10,214
Source: Company, RHBRI

Table 5: Valuation Based On “Sum Of Parts”

Project/Business RMm RM/share Methodology Key Assumptions
Construction/Property ex- 523.2 0.38 PER 10x FY12/11 net profit, in line with our benchmark 1-year forward
KL Sentral target PER for the construction sector of 10-16x.

KL Sentral 799.2 0.59 DCF Remaining GDV of RM10.2bn, project life of seven years, PBT margin of
of 15% (lower than 30% for similar developments to reflect JV
partners' shares of profits on certain projects), tax rate of 25% and the
benchmark discount rate of 10% for property projects.

Potential Federal land 1,157.1 0.84 DCF Share of GDV of RM10bn, project life of ten years, PBT margin of 25%,
parcels tax rate of 25% and the benchmark discount rate of 10% for property
projects.

DUKE (30%) 74.8 0.05 DCF Project IRR of 15%, equity IRR of 38.8% (debt-equity ratio of 70:30
and average before-tax funding cost of 6.5%), and discount rate that is
equivalent to MRCB’s cost of equity of 22.4%. DUKE in its entirety
carries an NPV of RM249.4m. MRCB’s 30% share is therefore
RM74.8m.

EDL (100%) 120.5 0.09 DCF Project IRR of 13%, equity IRR of 32.1% (debt-equity ratio of 70:30
and average before-tax funding cost of 6.5%), and discount rate that is
equivalent to MRCB’s cost of equity of 22.4%.

Total 2,674.8 1.96

Table 6: Earnings Forecasts Table 7: Forecast Assumptions

FYE Dec FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 921.6 1,138.7 1,291.7 1,339.8 Construction EBIT margin (%) 7.5 7.6 7.0
Turnover growth (%) New orderbook secured 500* 1,000 1,500
16.9 23.6 13.4 3.7 (RMm)
*RM158m secured YTD
EBITDA 110.1 150.5 168.0 168.6
EBITDA margin (%) 11.9 13.2 13.0 12.6

Depreciation -8.5 -8.5 -8.5 -8.5

Net Interest -38.6 -36.3 -31.6 -26.3
Associates -16.5 -4.0 -4.0 -4.0
EI 0.0 0.0 0.0 0.0

Pretax Profit 46.5 101.7 123.9 129.8

Tax -9.0 -20.3 -24.8 -26.0
PAT 37.5 81.4 99.2 103.9
Minorities -2.9 0.0 0.0 0.0
Net Profit 34.6 81.4 99.2 103.9
Source: Company data, RHBRI estimates

Page 4 of 6

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Chart 2: MRCB Technical View Point
♦ The share price of MRCB broke out from a tough
resistance level at RM1.33 in Jan 2010 to turn
bullish, but staged a sharp correction after hitting a
high of RM1.67.

♦ After scaling a low of RM1.27 in early Feb, the

stock resumed its buying momentum and reached
a fresh year high of RM1.72 in early Apr.

♦ Yet, another round of profit-taking activities

stepped in and dragged to stock down to RM1.35 in
late May.

♦ Thereafter, it crawled back to above RM1.51 and

formed a base, before resuming its rally in recent
trading.

♦ Closed with its second positive candle on the chart

yesterday, coupled with the upbeat momentum
readings and the positive trend on the 10-day SMA,
the stock is poised to rechallenge the RM1.70 key
resistance level soon, in our view.

♦ Upon breaking out from RM1.70, it will head

towards the RM1.95 hurdle on follow-through
buying momentum.

♦ Support, however, is only seen near RM1.51 on the

chart.

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to
opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer,
invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no
reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an
interest in the securities mentioned by this report.

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persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular
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from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over
a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

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Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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