THE BUZZ
Over the weekend, StarBiz quoted Iskandar Regional
Development Authority (Irda) CEO En Ismail Ibrahim as saying
that the Federal Government has
yet to decide on the operator of the multi-billion ringgit
intra-city commuter train (ICCT) service for Iskandar Malaysia. He said
that although Metropolitan Commuter
Network SB (MCN) proposed the rail network, the project is not exclusive to MCN
and is still open to other companies. Irda is still accepting new proposals
from other interested parties, he added. En Ismail also clarified that the
Johor state government and Irda are not involved in the project in any way as
the final decision lies at the Federal level.
OUR TAKE
A quick recap on the
rail project. On 19 Jan 2011, Malaysia Steel Works (Masteel) and KUB
Malaysia Bhd (KUB) announced that they will be entering into a Heads of Joint-Venture
agreement to form a JV company, MCN, which proposes to supply to and operate
a 106.5km rail transit network in Iskandar Malaysia and
Woodlands in Singapore. The project cost is estimated at RM1.35bn. Under the
proposal, seven new stations will be built along the route, together with 16
halts. The proposed rail network will also include a shuttle service from JB
Sentral to Woodlands in Singapore.
Long approval process
expected. As we had earlier anticipated negotiations on concession-type
projects to be protracted, particularly since this one is the first in kind in the
country, it would obviously require many rounds of deliberation before the
project is firmed up. Hence we are not
surprised to learn that the
proposal is still awaiting the green light from the Federal Government. We reckon that the JV company,
being the only one that has submitted a proposal for the commuter project,
stands a good chance of winning the concession. However, as we have not
incorporated any contribution from this project, the delay in approval will
have no impact on our estimates.
Maintain NEUTRAL.
While we expected the approval
of the proposed rail project to take
some time, we are nevertheless disappointed with the slow pace of
recovery in steel prices. In view
of the soft prices, we are lowering our book based valuation to 0.41x FY12 BV,
or -0.5 standard deviation of the
stock’s historical trading range, which trims our Fair Value to RM1.07,
although our NEUTRAL recommendation on
Masteel is maintained.
Source: OSK188
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