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MRCB down 11.5% after cash call move

Posted on May 19, 2017

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BY INTAN FARHANA ZAINUL

MRCB shares fell 11.5% to close at RM1.54 yesterday. Its warrants, which will expire in September next year, fell by 12.9% to 13.5 sen.

MRCB shares fell 11.5% to close at RM1.54 yesterday. Its warrants, which will expire in September next year, fell by 12.9% to 13.5 sen.

PETALING JAYA: Shares in Malaysian Resources Corp Bhd (MRCB) tumbled yesterday following the firm’s surprise cash call proposal that would bring its gearing down to almost zero.

MRCB shares fell 11.5% to close at RM1.54 yesterday. Its warrants, which will expire in September next year, fell by 12.9% to 13.5 sen.

The decline in MRCB shares were also in line with the fall in the broader market, after a sell-off in the US markets.

Bursa’s leading indicator, the FBM KLCI, closed 8.48 points, or 0.48%, lower to 1,767.17, in line with the overnight sell-off at most markets around the globe.

Analysts have a mixed view on MRCB’s proposed rights issue and highlighted the dilutive impact on its earnings per share (EPS)

CIMB Research reckoned that the proposed exercise would be positive for MRCB in the long term, but could create an overhang on the company’s share price over the short term.

“We acknowledge the longer-term benefits of this deal for the group’s ongoing and new property and construction ventures, mainly in KL Sentral, Cyberjaya, Kwasa Damansara and Bukit Jalil.

However, a rights issue of this magnitude typically weighs on sentiment and could create an overhang on the share price over the short term,” CIMB said.

The research house has downgraded its call on MRCB to “hold” from “add” but gave the stock a higher target price of RM1.76 from RM1.74 previously, and said this was based on their “finetuning the value of selected land banks” of MRCB.

Meanwhile, AmInvestment Bank maintained its “buy” call on MRCB, saying the proposal will have an immediate impact in reducing the gearing of MRCB.

It pointed out that the lower gearing level would translate into lower interest costs for MRCB and better earnings trajectory.

“However, we believe the substantially enlarged share base of MRCB may have a dilutive impact on the EPS of the group moving forward, which will be negative for shareholders,” it said in a note to clients.

CIMB estimated that the dilution in MRCB’s EPS for the financial year ending Dec 31, 2017 could be between 24% and 39%, taking into account potential interest savings and income from warrant proceeds.

Under the proposed rights issue exercise, MRCB is proposing to issue one rights share for every one existing share.

This would see its share base double to 4.35 billion shares. A free warrant would be thrown in for every five rights subscribed.

MRCB said that after the rights exercise, the company expects to save RM46.69mil from interest savings and its gearing is expected to reduce to 0.01 times from 0.73 times.

MRCB’s major shareholders, namely, the Employees Provident Fund (EPF) and Gapurna Sdn Bhd, have given their undertaking to subscribe for the full entitlement under the proposed rights issue and may apply for the excess.

The EPF has a 33.5% stake in MRCB, while Gapurna, a private vehicle of Tan Sri Mohamad Salim Fateh Din, has 16.8% in the company.

As at Dec 31, 2016, MRCB’s borrowings amounted to about RM2.94bil, which includes more than RM1bil in bonds linked to the Eastern Dispersal Link highway in Johor.

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