IJM Corp - In the running for another Indian highway (HLIB)

News:

 Bernama reported that IJM is one of the 11 companies shortlisted for a mega inter-state highway project in India that stretches 555km from Kishangarh, Rajasthan, to Ahmedabad, Gujarat. The project is estimated to cost about RM4bn and will be implemented on a build-operate-transfer model.

Comments:

 Based on our checks with the National Highways Authority of India (NHAI) website, the project was first called for prequalification in the middle of 2010 and the tender is expected to close by end-July 2011.

 This mega highway project is an upgrade on an existing 4-lane highway to a 6-lane highway and we understand that the route is a crucial link to Jawaharlal Nehru Port and Mumbai-Pune Expressway.

 According to sources, in view of the competitive nature of the bid, bidders will be paying the Indian Government a premium to undertake the project instead of seeking for a subsidy grant. The Government is looking at receiving an annual premium of not less than Rs298 Cr (~RM200m) with an additional 5% increase every successive year. The concession period is normally for 20 years.

 We are neutral on this piece of news as it is still too early to pick the winner. Furthermore, the award of project might be further delayed.

 Currently, IJM has five highway concessions in India

Risks:

 1) Execution risk;

 2) Political and regulatory risk (both local and overseas);

 3) Rising raw material prices; and

 4) Unexpected downturn in the construction, property and plantation sector.

Forecasts:

 Unchanged pending further clarity on the outcome of this mega highway project.

Rating:

 Maintain HOLD call as fundamentals have already been reflected in its share price.

Valuation:

 Target Price of RM6.61 based of Fully-Diluted Sum-Of-Parts valuation maintained.