Stock Name: PLUS
Company Name: PLUS EXPRESSWAYS BHD
Research House: OSK
PLUS Expressways Bhd
(Sept 21, RM4.15)
Maintain buy at RM4.15 with higher target price of RM4.84 (from RM4.57): It was announced on Bursa Malaysia yesterday that the 74:26 consortium between IDFC Projects Ltd (IP) and PLUS has won the tender from the National Highway Authority of India (NHAI) for a proposed design, build, finance, operate and transfer highway project.
The proposed highway from Jetpur to Somnath is 127.6km long. It is a brownfield job as it mainly involves converting the current single-lane carriageway into dual lanes. The Jetpur area passes through both commercial and residential areas while the end point of the highway is the approach to the famous Somnath temple. The highway forms part of the National Highway 8 (NH8) which connects the capital of New Delhi to the financial district of Mumbai.
IP is the project development arm of Infrastructure Development Funding Corp (IFDC), India's largest infrastructure finance intermediary. IFDC was set up by the Indian government in 1997 to lead private capital funding in commercially viable projects in the nation. Interestingly, PLUS' major shareholder, Khazanah Nasional Bhd, has a 9% stake in IFDC.
The concession agreement (CA) is expected to be inked in mid-October. While management did not provide any details on the toll structure, we understand that toll rates in India are increased every year in accordance to movements in the Wholesale Price Index,an inflation gauge. The concession period, which is expected to last 30 years, includes a 30-month construction period.
Assuming a development cost of RM1.3 billion (about RM10 million per km) and a 75:25 debt-to-equity ratio financing, PLUS will need to fork out RM84.5 million for the equity portion based on its 26% stake. This should not be an issue as we project that it can generate RM1.1 billion to RM1.6 billion in free cash flow to equity (FCFE) from FY2010 to FY2012. Management also guides that dividends should not be impacted. There will be no impact to the gearing of PLUS as the debts will be parked at the consortium level. As this is only an associate stake, it will not contribute to PLUS hitting its targeted 15% foreign revenue contribution by 2015.
Maintain 'buy' with a target price (TP) of RM4.84. We make no changes to our earnings forecast pending the announcement of the CA. Our TP is, however, raised as we narrow our discount to the FCFE valuation from 15% to 10% at an unchanged 9.2% equity cost. We continue to like PLUS for its defensive qualities and decent yields. ' OSK Investment Research, Sept 21
This article appeared in The Edge Financial Daily, September 22, 2010.
Company Name: PLUS EXPRESSWAYS BHD
Research House: OSK
PLUS Expressways Bhd
(Sept 21, RM4.15)
Maintain buy at RM4.15 with higher target price of RM4.84 (from RM4.57): It was announced on Bursa Malaysia yesterday that the 74:26 consortium between IDFC Projects Ltd (IP) and PLUS has won the tender from the National Highway Authority of India (NHAI) for a proposed design, build, finance, operate and transfer highway project.
The proposed highway from Jetpur to Somnath is 127.6km long. It is a brownfield job as it mainly involves converting the current single-lane carriageway into dual lanes. The Jetpur area passes through both commercial and residential areas while the end point of the highway is the approach to the famous Somnath temple. The highway forms part of the National Highway 8 (NH8) which connects the capital of New Delhi to the financial district of Mumbai.
IP is the project development arm of Infrastructure Development Funding Corp (IFDC), India's largest infrastructure finance intermediary. IFDC was set up by the Indian government in 1997 to lead private capital funding in commercially viable projects in the nation. Interestingly, PLUS' major shareholder, Khazanah Nasional Bhd, has a 9% stake in IFDC.
The concession agreement (CA) is expected to be inked in mid-October. While management did not provide any details on the toll structure, we understand that toll rates in India are increased every year in accordance to movements in the Wholesale Price Index,an inflation gauge. The concession period, which is expected to last 30 years, includes a 30-month construction period.
Assuming a development cost of RM1.3 billion (about RM10 million per km) and a 75:25 debt-to-equity ratio financing, PLUS will need to fork out RM84.5 million for the equity portion based on its 26% stake. This should not be an issue as we project that it can generate RM1.1 billion to RM1.6 billion in free cash flow to equity (FCFE) from FY2010 to FY2012. Management also guides that dividends should not be impacted. There will be no impact to the gearing of PLUS as the debts will be parked at the consortium level. As this is only an associate stake, it will not contribute to PLUS hitting its targeted 15% foreign revenue contribution by 2015.
Maintain 'buy' with a target price (TP) of RM4.84. We make no changes to our earnings forecast pending the announcement of the CA. Our TP is, however, raised as we narrow our discount to the FCFE valuation from 15% to 10% at an unchanged 9.2% equity cost. We continue to like PLUS for its defensive qualities and decent yields. ' OSK Investment Research, Sept 21
This article appeared in The Edge Financial Daily, September 22, 2010.
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