PLUS: BUY, target price RM4.84

OSK Research Sdn Bhd has increased its target price on PLUS Expressway Bhd (5052) to RM4.84 after the company, via its consortium, won the tender from National Highway Authority of India for a proposed highway project in India.

The proposed highway from Jetpur to Somnath (NH8B to NH8D) is 127.6km long. It is a brownfield job as it mainly involves converting the current single lane carriageway into dual lanes. The Jetpur area passes through both commercial and residential areas, while the end point of the highway is the approach to the famous Somnath temple.

The highway forms part of the National Highway 8 which connects the capital of New Delhi to the financial district of Mumbai.

"We understand that toll rates in India are increasing every year in accordance to movements in the Wholesale Price Index, which is an inflation gauge."
The concession period, which is expected to last 30 years, includes a 30-month construction period.

"Assuming a development cost of RM1.3 billion (RM10 million per km) and a 75:25 debt to equity ratio financing, PLUS will need to fork out RM84.5 million for the equity portion based on its 26 per cent stake. This should not be an issue as we project it can generate RM1.1 billion-RM1.6 billion in free cash flow to equity from financial years 2010 to 2012," OSK Research said.

"Management also guides that dividends should not be impacted. There will be no impact on the gearing of PLUS as the debts will be parked at the consortium level. As this is only an associate stake, it will not contribute to PLUS hitting its targeted 15 per cent foreign revenue contribution by 2015," it added.