MRCB: Play It Again,Sam

Can we play this counter by sheer logic based on the quantum of funds that is to be raised from the impending rights issue?

This is a yes and no answer. A do or die proposition.

MRCB intends to raise some RM 566 million rights issue from its shareholders. On the expected basis of 500 shares per 1000 held, this will work out to something like RM1.172 sen per new issue.

At the current price of RM1.34 sen per share,this is certainly not amusing. To make it attractive, MRCB intends that this price is a good discount to the market price. Are they trying to do the impossible, given the current market conditions? Or do they have an ace up their sleeve which they will throw into the ring at the opportune time?

By any reckoning, astute shareholders will subscribe to the rights if the market price is dramatically higher than the rights price. Let me do an extrapolation here.

To be fair to the shareholders, I see at least a 15% price variation for shareholders to take up the rights. That would mean the market price of MRCB should be no less than RM1.51. Since no price have been fixed for the rights nor the apportionment, it is still early days. Anything can happen between now and the end of the first quarter of 2010 when the rights exercise should be over.

So until such time, expect some interesting developments in MRCB to shore up its prices.

As I have mentioned in an earlier post, there are speculative elements in MRCB. One of these is that part of the rights issue will be used to purchase some choice federal land for commercial development. The rumour mill has it that MRCB and its parent EPF have been given the green light by the Government to acquire and develop two prime federal land parcels in KL, namely: (1) 150 acres in Jalan Cochrane near the city centre; and (2)20-30 acres in Jalan Ampang Hilir near the Jalan U-Thant area. It has been suggested that this federal land deal could enhance MRCB’s valuation by RM624m or 69 sen per share based on certain assumptions.

Numbers-wise, the RM558.1m net proceeds will reduce MRCB’s net debt and gearing of RM714.2m and 1.1x as at 30 Jun 09 to RM156.1m and 0.13x. However, the new shares will dilute MRCB’s FY12/10 EPS by 12% from 8sen to 7.1sen.

If the land deals should come through, then the indicative fair value of MRCB shares will be raised by 68% from RM1.02 to RM1.71, to reflect the potential massive 69 sen/share enhancement from the prime federal land in KL.

Many parties are recommending MRCB from under-performing to trading buy.Would you buy?