AZRB

It has entered into a concessions agreement with the government for the construction, completion, operation, management and maintenance of the EKVE highway.

The construction costs are estimated to be tm1.55 billion. The government has agreed to provide a loan of rm635 million with an annual interest rate of 4%.

The rm1.55 billion EKVE is more than the value of AZRB’s order book for the whole of 2012 which amounted tm rm1.44 billion. The award is expected to significantly expand the company’s construction business order book that currently (Feb 2013) stands at about rm2.3 billion.

The concession agreement is expected to contribute positively to AZRB’s earnings and net tangible assets for future financial years.

Its net assets per share was 74.7 sen as at Sept 2012.

In 2012, it won contracts with a total value of rm1.44 billion. The contracts came from the award of lumpy work packages from the Sungai Buloh-Kajang MRT Line project.

While the long-awaited East Klang Valley Expressway (EKVE) contract is expected to boost AZRB construction order-book by more than 50% to nearly RM4bil, the RM1.55bil award may not prove so lucrative in the near term.

The concession, for which the letter of intent was reportedly issued in 2007, comes with a period of 50 years as well as a loan from the Government worth RM635mil attached to an interest rate of 4% a year.

The highway contract increases AZRB's order-book to RM3.8bil from RM2.3bil as at end-September 2012, but it was a near-term negative to the company's financials as the loan would add some RM25.4mil in interest expense to the RM9mil it was already servicing each year.

AZRB's gearing level was also set to rise to 1.16 times from 0.25 times currently (Feb 2013)

The construction will take at least three years to complete from 2013, and toll revenue from this expressway is unlikely to boost the group's revenue at least until fiscal 2017.

The expressway was not a “game changer” for AZRB, which mostly undertakes Government-based infrastructure projects.

The fact that the Government had to extend a loan means AZRB's balance sheet alone can't handle it. Nonetheless, the firm has the ability to execute a project of this size based on its track record, which includes the Lebuhraya Pantai Timur in Terengganu.

Critics however said that the contract offered AZRB “two bites on the same cherry” from construction profits over the medium term and recurring toll profits over the longer term.