THE BUZZ
Over the weekend, StarBiz quoted Iskandar RegionalDevelopment Authority (Irda) CEO En Ismail Ibrahim as saying that the Federal Government has yet to decide on the operator of the multi-billion ringgitintra-city commuter train (ICCT) service for Iskandar Malaysia. He saidthat although Metropolitan CommuterNetwork SB (MCN) proposed the rail network, the project is not exclusive to MCNand is still open to other companies. Irda is still accepting new proposalsfrom other interested parties, he added. En Ismail also clarified that theJohor state government and Irda are not involved in the project in any way asthe final decision lies at the Federal level.
OUR TAKE
A quick recap on therail project. On 19 Jan 2011, Malaysia Steel Works (Masteel) and KUBMalaysia Bhd (KUB) announced that they will be entering into a Heads of Joint-Ventureagreement to form a JV company, MCN, which proposes to supply to and operatea 106.5km rail transit network in Iskandar Malaysia andWoodlands in Singapore. The project cost is estimated at RM1.35bn. Under theproposal, seven new stations will be built along the route, together with 16halts. The proposed rail network will also include a shuttle service from JBSentral to Woodlands in Singapore.
Long approval processexpected. As we had earlier anticipated negotiations on concession-typeprojects to be protracted, particularly since this one is the first in kind in thecountry, it would obviously require many rounds of deliberation before theproject is firmed up. Hence we are notsurprised to learn that theproposal 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 notincorporated any contribution from this project, the delay in approval willhave no impact on our estimates.
Maintain NEUTRAL.While we expected the approval of the proposed rail project to takesome time, we are nevertheless disappointed with the slow pace of recovery in steel prices. In viewof the soft prices, we are lowering our book based valuation to 0.41x FY12 BV,or -0.5 standard deviation of thestock's historical trading range, which trims our Fair Value to RM1.07,although our NEUTRAL recommendation onMasteel is maintained.