News The media speculated that the government is looking to acquire MRCB's EDL (Eastern Dispersal Link) highway for RM1.2b. The amount is expected to be more than enough to cover EDL's bond amount of RM1.04b. However, there are no official announcements yet from either the government or MRCB.
Comments The price tag is largely below our expectations as it is not enough to cover MRCB's equity portion at c. RM270m for the project after paying off its RM1.04 debts. We think that the price tag is unattractive for MRCB.
Based on our numbers, we value the EDL concession at RM1.8b with the equity value at RM750m. In our estimate, w have factored in the assumptions of a 10% toll rate hike for every 3 years in the 34-year concession period with an ADT (Average Daily Traffic) of 50,000. We see lower risk for lower-thanexpected traffic for EDL, as it serves the main dispersal route from the CIQ Complex.
In our opinion, the reasonable offer for the EDL will be in the range of RM1.4b to RM1.8b based on our forecast after factoring the minimum return on equity at 20% and incremental toll rate charges.
To recap, the government's immediate solution for MRCB will be enough to cover EDL's interest and operational cost until the end of 2012.
The RM1.2b price tag is enough to cover its debt and but short of its equity by RM100m. Nonetheless, it is still positive for MRCB as it will lift up its earnings by RM84m a year.
Outlook Remains bright due to it being the frontrunner for the RRI land development project and potential new significant contracts to be secured ahead (the construction order book replenishment for FY12 to date has been unexpectedly slow).
Forecast No changes to our forecasts.
Rating Maintain OUTPERFORM
We are maintaining our OUTPERFORM recommendation.
Valuation No changes in our Target Price of RM2.07 based on SoP valuation.
Risks Delays in securing more land banks and cost overruns for its ongoing projects due to construction delays.