Saturday, March 08, 2003
PLUS on a steady pathBy DARSHINI M. NATHAN
PLUS Expressways Bhd has indeed come a long way. But one thing has remained certain through the wild swings of the economy, the rise and fall of its parent United Engineers (M) Bhd that led to its own indebtedness and change of control - it has always been a prized asset.
Today, as a company trading on the stock exchange, the same certainty is not far behind. PLUS is generally regarded as a safe bet with steady and predictable earnings growth. Some others however, refer to these traits less favourably. They say it's simply unexciting.
For now, at leat, PLUS has a virtual monopoly over road travel on the west coast stretch of the peninsula.
To some extent, PLUS Expressways' stock performance since its initial public offering (IPO) reflects the market's craving for thrill.
It is currently trading at a 5 per cent discount to the RM2.295 retail investors paid at its IPO. It reached its peak of RM2.39 in late January this year.
The company seems deliberately to have kept a low key since all the brouhaha over its listing, quite unlike its heavyweight listing companion Maxis Communications Bhd.
That is not to say the group has no big plans. “We have been busy ... perhaps more behind the scenes than in the public eye,” PLUS executive vice-chairman Abdul Wahid Omar tells BizWeek.
Infact, Wahid says PLUS is diligently looking to acquire other toll road concessions or provide them with operation and maintenance (O&M) services.
“PLUS effectively has two routes to growth – from within the current concession or from outside of it,” he elaborates.
As far as growth from within the current concession goes, Wahid says PLUS could add on lanes to existing expressways or further improve margins.
“In this aspect, we have put forth some proposals to the government but this is still at a very preliminary stage ? certainly too premature to discuss at this juncture,” he claims.
Over and above this, PLUS is also looking at other areas of growth, which are also too early to dis- cuss given most are at the “proposal stage”
Wahid asserts, however, that the company will remain focused on the business of operating toll roads.
He strongly defends PLUS' status as a safe and stable investment for long-term investment which some may deem as unexciting. But he says this:
“We will grow, both financially and physically in terms of business, but not at a rate that is going to jeopardise the company's health.
It is safe to say that the PLUS Expressways of 2010 will be bigger and financially stronger than the PLUS Expressways that you see today.”
The move into O&M services is a logical step given that, and as Wahid puts it, PLUS can draw from the skills it has acquired in the business over the last 15 years and its large pool of toll road assets to provide O&M services to other toll concessions.
“We can offer economies of scale that other operators may not be able to match. So, it makes sense for us to explore how we can best use our resources to benefit other parties, while providing additional income to PLUS,” Wahid says.
Typically, the margins from O&M services are not as healthy as owning a concession itself, but the risks are relatively limited.
As far as going abroad is concerned however, PLUS is clearly not too eager to jump in the bandwagon, particularly given the fact that any such venture will require more time and scrutiny given the higher risks involved.
“But PLUS is well-positioned to learn from parent company United Engineers (M) Bhd's experiences in handling its construction jobs in India. We are also watching and learning from companies currently undertaking projects overseas,” adds Wahid, who is also managing director and chief executive officer of UEM.
One thing is for sure, the company is definitely on a stronger financial position now that it has successfully restructured and refinanced its hefty debts of RM16.8 billion to a more manageable level.
Its recently released results saw an impressive 36 per cent and 57 per cent year-on-year rise in sales and operating profits, respectively. If not for an exceptional loss of RM4.2 billion, PLUS would have posted a net profit of RM735.3 million.
PLUS' IPO formed part of the plan to restructure the debts of parent UEM. Prior to its listing, PLUS was a wholly-owned subsidiary of UEM – a Kuala Lumpur Stock Exchange main board company which was taken private by the government to speed up its restructuring.
Post-listing, the government now holds a 70 per cent stake in PLUS via UEM (49.2 per cent) and Khazanah Nasional Bhd (20.4 per cent). Another 14 per cent stake is held through government-linked funds like the Employees' Provident Fund (7.5 per cent), Socso (4.9 per cent) and Pengurusan Danaharta Nasional (1.4 per cent).
The debt restructuring exercise has successfully reduced the company's net debt to RM6.3 billion from RM16.3 billion as at Dec 31, 2001.
Debts were settled via the RM2.4 billion proceeds from a rights issue to Khazanah, conversion of RM1.8 billion redeemable convertible bonds, repayment of inter-company loans worth RM3.6 billion by UEM, RM1.7 billion interest waiver on government support loan and cashflow from operations.
In addition, a refinancing exercise was also undertaken whereby PLUS issued RM5.1 billion Bai Bithaman Ajil Islamic Debt Securities in May in last year. This was followed by the issuance of RM2.26 billion Nominal Value Bai Bithaman Ajil Islamic Debt Securities last December.
Both issuances were assigned a triple A rating by Rating Agency Malaysia Bhd in view of PLUS' strong cash generating track record, enhanced debt servicing ability and robust credit profile.
According to an analyst with a local bank-backed brokerage, the two Islamic bond issuances should see the company's average cost of debt reduced to 6.3 per cent, from between 9.6 per cent and 10 per cent previously.
Weak share price
Even as things have definitely picked up for the company since less than a year ago and definitely since the listing, the stock performance is not reflecting that.
Apart from the disappointment over the expected lucrative dividend payout, which has yet to come through, an analyst says there may still be some residual apprehension over the company's past transgressions.
“Unfortunately, this is a legacy problem which the current management will have to contend with until they can prove that the past ought to be put to rest,” he says.
Then, there is also policy risk attached to the company's toll revision rates and compensation by the government should there be no revision in toll rates.
PLUS' earnings hinges largely on traffic volume growth and toll rate increases.
Typically, traffic volume grows in line with the country's gross domestic product (GDP). The Malaysian Institute of Economic Research has forecast a GDP growth of 5.7 per cent and 6.3 per cent for 2003 and 2004, respectively for the country.
On the other hand, PLUS' traffic consultants Halcrow has forecast traffic volume on PLUS' express- ways to grow 7.4 per cent and 6.3 per cent based on the assumption that GDP growth is 4.5 per cent and 5.0 per cent in 2003 and 2004 respec-tively.
Threat of competition
For now, at least, PLUS has a virtual monopoly over road travel on the west coast stretch of the peninsula. Having been awarded the concessions for the 797 km North-South Expressway, 34.8 km New Klang Valley Expressway and 15.9 km Federal Highway Route 2 between Subang Jaya and Klang up to May 2030, its current position is enviable to say the least.
But recent developments, in the form of new competing expressways to be built, look set to rock PLUS’ boat. The government announced last October that it would revive the construction of the 240-km West Coast Expressway (WCE) project. The project was awarded to Konsortium LPB Sdn Bhd in 1996 but was later shelved following the onset of the 1997-1998 financial crisis. Konsortium LPB is a 40 per cent- and 20 per cent-owned associate of sister companies Talam Corp Bhd and Europlus Bhd, respectively.
But, as in the case with most new expressways, it will take a while before the competing highways result in a substantial loss of traffic volume to PLUS as motorists take time to get used to alternative routes.
Wahid, while not shrugging the threat off completely says: “While these projects do have the potential to take some traffic away from sections of PLUS’ expressways, we do not see that they will threaten PLUS as an inter-urban route.”
On the other hand, he says with the introduction of Afta (Asean Free Trade Area), cross-border traffic is expected to increase over the next few years.