More on GSBB. GSSB, principally engaged in property development, is the legal owner of a piece of land in KL Sentral known as Lot 348. Lot 348 is approximately 91,040 sq ft and has been approved for a mixed development comprising office and service apartments with a total GFA of 1,468,277 sq ft and an estimated GDV of RM850m. Development works on Lot 348 commenced in March 2009 and are expected to be completed by 4Q2012.
For future investment property. We view the consideration price of RM105m for the 60% stake in GSSB as somewhat fair given that the land itself is valued at RM110m based on the current market price coupled with the fact that the on-going development at Lot 348 has reached more than 10% completion. Last year. GSSB secured Shell as the anchor tenant for the office space while the serviced apartment will be managed by an external hospitality management firm. We gather that MRCB intends to keep the development in Lot 348 as its investment property, with future plans for the assets to be injected into a REIT. We are positive on this move as it will provide MRCB with stable future income.
Maintain Trading Buy at higher TP. With the development on Lot 348 expected to be completed in 4Q12, we maintain our FY10 and FY11 forecasts as we only expect the investment income from the development to only materialize in FY13. We maintain our TRADING BUY recommendation on MRCB with a higher TP of RM1.80 from RM1.75 previously based on SOP valuation. We arrive at a higher TP after taking into account the additional 60% stake in Lot 348 following the proposed acquisition, which will have the effect of pushing up the stock’s RNAV in our SOP valuation.
Still optimistic. With EPF as its largest shareholder with a more than 40% stake, we reiterate our view there is high possibility that MRCB will be turned to EPF’s property arm to undertake the development of Federal land, particularly for the development of RRIM’s land in Sungai Buloh. Although no further details on the proposed development have been disclosed, we believe MRCB’s track record in developing KL Sentral under the same mechanism will further enhance its chances to be actively involved with the proposed development of Federal land.