- Maintain BUY on IJM Corp with an unchanged
sum-ofparts-derived fair value of RM7.23/share. The Edge Weekly reported that
Kumpulan Europlus is due to sign a concession agreement (CA) for the West Coast
Expressway (WCE) within the next two weeks.
- This follows some changes to the CA although the salient details
of the pact remain largely intact. K Euro has an 80% stake in West Coast
Expressway Sdn Bhd, with IJM Corp holding the balance 20%.
- To recap, the WCE CA announced last January broadly encapsulates:-
(i) A 60-year agreement that comes with a government support loan (GSL) of
RM2.2bil commencing 2013 @ 4% p.a.; (ii) Interest subsidy on commercial loans for
22 years.
- In return, the government is to share toll revenue in
access of an agreed traffic volume on a 70:30. The ratio is to revert to 30:70
when GSL is fully repaid.
- Critics of the WCE had earlier said that apart from a near
doubling of its original cost estimate, the RM7bil highway has the longest
tenure among expressways in Malaysia. Other concerns centred on the GSL and
interest subsidy accorded to the project. This had led to led to reports that the
Attorney General’s (AG) Chambers were re-looking at the terms of the CA.
- We gather that K Euro has since explained to the AG that the
CA’s terms are required to mitigate:- (i) its low traffic numbers (notably in
coastal areas); (ii) difficulty in securing long-term funding; and (iii) a
non-tolled stretch. In addition, the profit sharing ratio has been tweaked
along within a shorter tenure.
- We see IJM as the biggest beneficiary of an imminent crystallisation
of WCE’s CA, widely seen as the last remaining hurdle before the project
actually takes off. IJM had just last month bought a 20% direct stake in WCE
Sdn Bhd for ~RM7mil (total effective stake: ~43%), providing a boost to the
funding viability of the highway.
- Likewise, we believe IJM will likely participate in any
fund raising exercise that K Euro is tipped to embark on to raise ~RM2bil for
the WCE’s equity portion. K Euro is also reportedly planning to divest some of
its assets for additional funds, including a 50% stake in Canal City and part
of its interest in Trinity Corp (formerly Talam Corp).
- We foresee IJM as a frontrunner for over RM4bil worth of capex
works for WCE, in addition to spin-offs for its other units:- (i) increased
demand for large-diameter piles for ICP; (ii) improved accessibility to IJM
Land’s upcoming Canal City project.
Source: AmeSecurities
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