- 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%.