Compensation for EDL to be neutral on MRCB's net present value: KAF Research

PETALING JAYA: The compensation for the abolishment of toll collection on the Eastern Dispersal Link (EDL) will have a neutral impact on Malaysian Resources Corp Bhd’s (MRCB) net present value (NPV) and may even reignite divestment plans for EDL.
“We believe the impact on MRCB will at the very least be NPV neutral, given the need to uphold the sanctity of the existing EDL concession. In fact, this may reignite MRCB’s divestment plans for EDL, in our view,” said KAF Research in its report.
The EDL concession (net of debt) contributes about 1 sen or less than 1% of group net asset value (NAV). KAF Research maintained its “buy” recommendation on MRCB with an unchanged target price of RM1.26 (15% discount to NAV).
According to news reports, the government will compensate PLUS Malaysia Bhd and MRCB for the abolishment of toll collection, which was announced under Budget 2018.
The four locations involved in the abolishment are Batu Tiga, Sg. Rasau in Selangor, Bukit Kayu Hitam in Kedah and the EDL. MRCB owns and operates EDL while the rest are under PLUS.
It is understood that the government is looking at RM102 million annually to compensate PLUS for scrapping the Batu Tiga and Sg. Rasau tolls, and RM8 million a year for Bukit Kayu Hitam.
“As for EDL, MRCB would be compensated for the loss of toll revenue once tolling is scrapped from Jan 1, 2018. To recap, the EDL has been a drag on MRCB’s earnings and constitutes about 30% of its total debt as of June 30 per our estimates,” said KAF Research.
The toll charge at EDL is RM6.80 per trip and the EDL concession runs for a period of 34 years.
Prior to the toll abolishment, the average daily traffic for EDL fell 6.6% to 39,264 for year-to-date-April 2017 following an increase in road charges on both sides of the Malaysia-Singapore causeway. Total traffic for 2017 is projected to fall 10%.
“Due to the cash flow mismatch between its toll collection and debt obligations, a July report by RAM Ratings indicated that MRCB has injected RM58 million into EDL for the past two years. On June 21, it pumped in another RM67 million to repay its concession unit’s term loans,” said KAF Research.
Apart from cash compensation, the research house noted that the government had on previous occasions lengthened the concession period of other toll concessionaires in return for stopping scheduled toll hikes.
However, it is unsure how EDL would be restructured, given that it is a one-way toll for motorists entering Singapore through the Customs, Immigration and Quarantine centre at the Malaysia-Singapore causeway from the Pandan Interchange along the North South Expressway in Johor.