One thing which some developers do, once they obtain sufficient reserves from the years of profits would be to buy up businesses with recurring income. This helps to stabilised their earnings as well as to ensure they are still profitable even during slow times or if it should happen again, a financial crisis. A new deal is being finalised by IJM’s wholly owned subsidiary, Road Builder (M) Holdings Bhd with Silk Holdings Bhd. The deal? Acquire all the 220 milion shares in Sistem Lingkaran – Lebuhraya Kajang Sdn Bhd for RM398 million cash. Yes, cash. Thats how rich some of these listed companies are. 🙂
Nevertheless, all these would be subject to approval by Economic Planning Unit, Unit Kerjasama Awam Swasta and shareholders of Silk Holdings. IJM said the purchase consideration was agreed on a willing buyer-willing seller basis after considering the actual traffic and discounted future cash flow projections for Silk. Silk is the concession holder for the 37-km Kajang Traffic Dispersal Ring Road (Silk Highway). This concession runs till July 31, 2037. Adding this to their current toll roads, IJM would soon own 362.8km of tolled roads. This is about the distance of KL to Penang. For Silk, according to its executive chairman, the time was right to sell these non-core business. For the past three years, 70% of its revenue has been coming from its oil and gas division.
According to Wikipedia, the total tolled roads in Malaysia is 1,630km and divided into a total of 27 highways. Thus, IJM owns about 22% of all of these. Quite a significant numbers. Toll operations are considered quite a stable business because cars will increase but the % is likely to be in single digit and thus the revenue that these highways generate would be a recurring and continuous. What else can we learn from this purchase? I think it is now safe to say that buying properties in Kajang may just be the right choice many years down the road. I am quite sure IJM has done lots of study and research on this before they buy. Thus, let’s believe their analysts.
written on 28 May 2014
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