THE BUZZ
IJM’s wholly-owned subsidiary, New Pantai Expressway SB, has been notified by the Public Private Partnership Unit of Prime Minister’s Department that the Government has decided not to proceed with the proposed extension of New Pantai Elevated (NPE) highway.
OUR TAKE
NPE extension first announced in April 2011. The proposed 10km NPE extension to Ampang-Kuala Lumpur worth RM1bn received the go-ahead from the Prime Minister's Department in April 2011. The project was to be privatized via a supplemental agreement to the concession agreement dated March 1996. Subject to further negotiations on the technical and financial terms, talks were expected to be concluded within six months. Nonetheless, the progress of extension negotiations has been delayed due to various reasons.
Negative surprise. The announcement is a negative surprise as IJM’s management had previously highlighted that the proposed alignment for the NPE extension has been finalized and was likely to be officially awarded by 2H this year. While management has expressed intention to appeal for the proposal to be reconsidered with a revision in its alignment, we believe this negative development is likely to trigger selling on IJM shares.
TRADING BUY. Having said that, we are maintaining our TRADING BUY call for now, pending more clarification from management on this matter. Reading between the lines of the company’s Bursa announcement, we reckon that a revised alignment - which IJM will soon re-table - might help to push through the proposed extension. Our FV remains unchanged at RM6.34, based on SOP valuation.
Source: OSK
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