Saturday August 18, 2012
Govt in talks to take over EDL
This exercise would “negatively affect its FY12 (financial year ending Dec 31, 2012) earnings via heavy finance cost of (about) RM84mil” because the Government would pay a sum of “compensation” to MRCB to recover its operating and finance expenses, it said in a note.
The “compensation” sum would be recognised in the balance sheet rather than in its income statement, it added.
MIDF, which had a buy call in a separate report, said that MRCB’s management met the economic council in July to discuss on EDL issues and among that was the Government might pay monthly interim funding to cover interest expenses derived from the highway’s bonds and that the Government agreed in principal to take over the expressway.
Due to such circumstances, Kenanga has reduced its FY12 and FY13 earnings by 61% and 47% respectively as it has removed EDL’s construction earnings and recurring income from its forecasts.
However, Kenanga is maintaining its outperform call on MRBC as it believes that the company stands a higher chance to secure more government-related projects in the near term.
It has revised its target price substantially lower to RM2.07 from RM2.71 per share based on the revised net asset value valuation.
Commenting on its recently-announced second-quarter financial results for FY12, Kenanga said it came in below its expectations.
“The first-half FY12 net profit of RM27mil only made up 25% and 34% of ours and the consensus’ full-year FY12 forecasts of RM174mil and RM80mil respectively,” Kenanga said.
An internal compilation of local and foreign house analysts by StarBizWeek as of press time showed that close to 73% of analysts were bullish on the stock, while about 18.2% were neutral and the rest were bearish on MRCB.
Their consensus target price was RM2.20 after a number of them lowered their target prices when MRCB announced its results recently.
The EDL project, which is MRCB’s second in terms of tolled expressways, had been opened earlier this year. The EDL had been completed in January 2012 with a 34-year concession investment and disperses traffic in downtown Johor Baru, linking the Sultan Iskandar Customs, Immigration & Quarantine (CIQ) complex at Bukit Cagar with the North-South Expressway (PLUS highway) at the Pandan interchange.
News reports had highlighted earlier this year that many people were unhappy with the proposed toll rates of RM6.20 per travel. Reports to date indicate that the Government has yet to approve the toll charges while motorists are still using the EDL for free until today.