- Maintain BUY on IJM Corp with an unchanged fair value of RM5.71/share;
pegged at a10% discount to its sum-of-parts (SOP) value.
- The Edge Weekly revealed more details on the West Coast Expressway
(WCE) concession agreement (CA) that West Coast Expressway Sdn Bhd (WCE Sdn Bhd)
– an 80:20 unit of Kumpulan Europlus and IJM Corp – had signed last week:
(i)The
construction cost has been reduced to RM5.2bil from an earlier RM7.1bil. This
follows a 25% reduction in the highway length.
(ii) Early termination on the 50th-year of the 60-year concession
period, if WCE meets its stated returns under the toll-sharing mechanism
between WCE Sdn Bhd and the federal government.
(iii) An interest subsidy of up to 3% on the commercial
loans for a period of 22 years has been scrapped.
(iv) There are no changes to a planned RM2.2bil soft loan
and roughly RM980mil in land acquisition cost to be borne by the federal
government.
- We believe the revised terms of the CA – if it is true as
per the report – would help address some outstanding concerns that would now
tilt it more in favour of the government over the longer term.
- The WCE is positioned as a cheaper alternative for commercial
vehicles plying the Banting-Taiping stretches of the North South Expressway.
The signing of the CA would undoubtedly remove a key overhang for IJM on the
status of the project after several delays.
- We estimate that the WCE could present ~RM4bil worth of job
opportunities to IJM – and more than double its existing order flows to a
record RM7bil-RM8bil. We expect jobs to start being dished out from 2H13
onwards, once funding needs are fully addressed.
- Reflecting this new details, our initial estimate on the
valueadd from WCE largely remains: ~8% to RM6.16/share. This is just based on
an effective 38% stake in the concession and 20% share of capex works.
- Flipside, other reports indicate that IJM’s bid for a
controlling 25% stake in Scomi could receive a boost from TAEL One Partners
Ltd’s recent conversion of loan stocks in exchange for close to a 10% stake in
the latter. We are neutral on this pending the outcome of an EGM to approve a
RM110mil convertible debt issuance to IJM that could lift its stake in Scomi to
25%.
Source: AmeSecurities
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