KUALA LUMPUR: The proposed disposal of Gamuda Bhd's toll highway stakes will set a framework for IJM Corp Bhd to potentially unlock value of its Malaysian toll highway stakes for nearly RM2.0 billion, indusytry observers said.
Overall, they said the proposal by Amanat Lebuhraya Rakyat Bhd's (ALR) to buy four highways in the Klang Valley which Gamuda either has controlling or significant stakes, would open doors for other highway operators to sell their stakes.
"It is definitely possible for other highway operators to start divesting their highway stake, provided the proposed model such as ALR managed to fulfill its objectives of reducing government financial commitment, providing excellent highway services and maintenance, and at the same time gain full acceptance by the public," Putra Business School associate professor Dr Ahmed Razman Abdul Latif said.
"So ALR will be a case study for the existing highway operators and its success will be the deciding factor on the divestment strategy," Ahmed Razman told the New Straits Times.
IJM wholly-owns Besraya, New Pantai Expressway and Lebuhraya Kajang-Seremban, and effectively holds a 38 per cent stake in under-construction West Coast Expressway (WCE).
Affin Hwang Investment Bank senior associate director analyst Loong Chee Wei said the firm's combined valuation for IJM's highway stakes was RM3.4 billion.
Excluding WCE, which has not been completed, Loong estimated that IJM can unlock RM1.97 billion or 56 sen share based on its discounted cash flow (DCF) valuation for Besraya, NPE and Lekas.
Affin Hwang's DCF valuation for Besraya is RM458 million, NPE is RM1.51 billion and nil for Lekas. Hence, the total DCF valuation is RM1.97 billion or 56 sen per share for IJM's portfolio of completed toll highways in Malaysia.
"We believe there is potential for IJM to dispose its matured toll highway stakes to ALR in the future. The proposed disposal of Gamuda's shareholding in toll highway concessions to ALR provides a framework for other concessionaire disposals," Loong wrote in a report today.
"We believe the RM6 billion WCE project will likely be excluded from a possible disposal of its toll highway stakes given that the WCE has not been completed and it will take some time for FCF (free cash flow) to turn positive," he added.
IJM's Besraya and NPE were matured toll highways generating strong FCF and earnings, he said.
"However, the government has to pay toll compensation for not allowing toll rate hikes stipulated in the concession agreements. On the other hand, its Lekas toll highway continues to incur losses and has negative shareholder funds.
"We believe ALR will likely approach IJM in the future to acquire the latter's toll highway stakes so that the government can reduce its toll subsidy bill and freeze toll rates by renegotiating the concession agreements," he added.
Loong estimated the government would have to pay RM89 million in compensation to IJM's toll highway concession companies in financial year 2022 for not allowing scheduled toll rate hikes under the respective concession agreements.
The growing toll subsidy bill, which was based on rising traffic volume on the toll highways as all movement restrictions have been removed, would put pressure on the government's finances, he said.