Tuesday, April 15, 2014

KEuro/IJM Corp


It will now (Feb 2014) focus on the execution of its RM6bil West Coast Expressway (WCE).

Mamee-Double Decker (M) Bhd managing director Datuk Wira Pang Tee Chew and his brother, Datuk Wira Pang Tee Nam emerged as substantial shareholders of KEuro with a 9.08% stake or 52.05 million shares via their holdings in United Frontiers Holdings Ltd, a British Virgin Island incorporated company.

Tan Sri Krishnan Tan, the former boss of IJM Corp Bhd, is also likely to join the board because the decision to push on with the WCE was largely his brainchild.

Currently (Feb 2014) the second largest shareholder of KEuro is MWE Holdings Bhd, a company controlled by Tan Sri Surin Upatkoon with a 24.68% stake in the company. In 2013 he bought a 22.15% stake from KEuro’s substantial shareholder Tan Sri Chan Ah Chye for RM155mil.

IJM is the largest shareholder with a 25.1% stake.

Observers opine that it is not just the WCE that attracted MWE and the Pang brothers to put their money in KEuro. After all, concessions’ profits will only kick in at least five years down the road.

While the WCE will be providing the long-term revenue stream for the company, it is the potential of KEuro’s 1,879-acre Bandar Rimbayu mixed development in Shah Alam that appears to be the sweetener.

Also, it is this mixed development with an RM11bil gross development value (GDV) that will likely bring the company back to the black in FY14.

The first two phases launched last year recorded sales of RM600mil, with take-up rates of 100% and 80% respectively.

KEuro presently (Feb 2014) has three main assets: the WCE project, the 40% stake in Bandar Rimbayu development and a 30% stake in associate company Trinity Corp Bhd (now known as Talam Transform Bhd).

Since receiving confirmation from the Government to commence work on the WCE, KEuro has been given 5 years to complete the project effective from Dec 20, 2013.

Construction work on the highway in the Selangor stretch is expected to commence in April 2014 and take three years to complete. This portion of the highway will contain a section of elevated highway.

The WCE project spans Banting in Selangor to Taiping with 233 km of tolled highway (including 40 km of highway to be constructed later).

It is a build-operate-transfer project with a concession period of 50 years. This concession period will be extended a further 10 years if the agreed targeted internal rate of return is not achieved.

Tee Chew is a non-executive director of KEuro.

A government support loan (GSL) of RM2.24bil will be provided at an interest rate of 4% per annum subject to separate negotiations and an agreement to be executed with the Finance Ministry.

Of the RM6bil cost of the WCE, land acquisition cost of up to RM980mil will be borne by the Government.

During the GSL tenure, 70% of excess revenue will be utilised as repayment of the GSL. After settlement of the GSL, the ratio will switch to 30:70 between the government and WCE if the targeted IRR is not achieved and 70:30 if the actual IRR is more than the targeted IRR.

Previously, West Coast Expressway Sdn Bhd chief executive officer Datuk Neoh Soon Hiong (now CEO of KEuro) said that five out of a total of 11 work packages would be dished out in April 2014.

Being an equity owner of the WCE, IJM is obviously a beneficiary and is likely to be appointed the project manager and main contractor.

IJM is eyeing some 70% of the RM5bil project, hence potentially boosting its order book to RM6bil from RM2.5bil as of September 2013.

While KEuro owns 80% of WCE, the rest is held by Road Builder (M) Holdings Bhd, a unit of IJM Corp.

The commencement of work is definitely positive for KEuro. It is a beneficiary of the WCE story and will eventually see a new revenue stream from the concession. For now (Feb 2014), its earnings are still very lumpy. Revenue contribution from property will also smoothen out its earnings.

KEuro is now (Feb 2014) in the midst of implementing its rights issue, having obtained the approval of shareholders to raise more than RM400mil to kickstart the WCE.


KEuro will be placing out 429.74 million rights shares and 214.87 million free detachable warrants on the basis of three rights shares for every four existing KEuro shares held and one warrant for every two rights shares.

Property wise, KEuro has Bandar Rimbayu, which is being developed by Radiant Pillar Sdn Bhd, a 50:50 joint venture between KEuro and IJM Land Bhd’s subsidiary IJM Properties Sdn Bhd.

In January 2014, shareholders approved a plan to sell 10% equity stake in Radiant Pillar to IJM Land for RM52.5mil cash. Once the sale is complete, KEuro will only own 40% stake in the project.

After the successful launches of its first two phases, it will launch its third phase in early 2015 with a GDV of RM400mil. Phase one of Bandar Rimbayu was launched in March followed by phase two in August 2014.

Bandar Rimbayu’s GDV of RM11bil will be spread over the next 10 to 12 years. The township is accessible via three highways – Elite, Kesas and the South Klang Valley Expressway.

The original land cost for Bandar Rimbayu is only RM5 per sq ft compared with an average of RM18 per sq ft Tropicana Corp paid for 1,172 acres near Bandar Rimbayu (total cost of about RM1.3bil).

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Disclaimer:
Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.