THE BUZZ
IJM’s 23%-owned associate Kumpulan Europlus told Bursa Malaysia in a filing yesterday that its 80%-owned subsidiary, West Coast Expressway SB (WCESB), has entered into a concession agreement with the Malaysian Government in relation to the West Coast Expressway (WCE) project spanning Banting in Selangor, to Taiping, Perak.
OUR TAKE
Project cost slashed. The group’s announcement did not contain much detail but we took note of the fact that the length of the proposed highway has been shortened. The proposed WCE was to initially cover a total of 316km, of which 224km would be tolled and 92km toll-free. According to Europlus’ latest Bursa filing, the expressway will stretch over a distance of 233km. We understand that this is the resultof the removal of the toll-free section, which we believe the Government may have decided to forgo after thorough deliberation. This move may ultimately translate into a lower estimated development cost of about RM6bn versus RM7bn previously forthe WCE.
Other terms mostly status quo. We understand from various sources that most of the terms in relation to the proposed WCE have been retained, except for the interest subsidy of up to 3% on commercial loans over a period of 22 years, which the Government has withdrawn after having initially offered it to WCESB. Among the terms retained are:
1) the project will be undertaken on a build-operate-transfer basis over a concession period of 60 years;
IJM’s 23%-owned associate Kumpulan Europlus told Bursa Malaysia in a filing yesterday that its 80%-owned subsidiary, West Coast Expressway SB (WCESB), has entered into a concession agreement with the Malaysian Government in relation to the West Coast Expressway (WCE) project spanning Banting in Selangor, to Taiping, Perak.
OUR TAKE
Project cost slashed. The group’s announcement did not contain much detail but we took note of the fact that the length of the proposed highway has been shortened. The proposed WCE was to initially cover a total of 316km, of which 224km would be tolled and 92km toll-free. According to Europlus’ latest Bursa filing, the expressway will stretch over a distance of 233km. We understand that this is the resultof the removal of the toll-free section, which we believe the Government may have decided to forgo after thorough deliberation. This move may ultimately translate into a lower estimated development cost of about RM6bn versus RM7bn previously forthe WCE.
Other terms mostly status quo. We understand from various sources that most of the terms in relation to the proposed WCE have been retained, except for the interest subsidy of up to 3% on commercial loans over a period of 22 years, which the Government has withdrawn after having initially offered it to WCESB. Among the terms retained are:
1) the project will be undertaken on a build-operate-transfer basis over a concession period of 60 years;
2) the Government will provide a support loan of RM2.24bn commencing from 2013, at an interest rate of 4% p.a;
3) toll revenue in excess of an agreed traffic volume will be shared between WCESB and the Government on a 70:30 basis prior to full settlement of the support loan, and at a 30:70 ratio upon full loan repayment; and
4) the Government will bear the land acquisition cost of up to RM1bn.
Positive surprise. The announcement caught us by surprise as we had not expected the WCE to make much progress before the country holds its 13th General Election. That said, we are glad that the long-awaited concession agreement is finally wrapped up almost a year after WCESB received approval-in-principle from the Prime Minister’s Department to undertake the project on 26 Jan 2012.
What’s next? With the concession agreement now in the bag, we expect to see financial closure over the next six to nine months. IJM’s direct exposure to WCE via its 20% stake in WCESB, as well as its indirect exposure through 23%-owned Kumpulan Europlus, reinforces our belief that the group has the best chance of securing the civil works associated with WCE, for which we estimate at about RM5bn vis-à-vis its current orderbook of over RM4bn. We expect the related civil jobs to be officially awarded in 2HCY13. Maintain TRADING BUY on IJM, with our FV unchanged at RM5.72.
Source: OSK
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