CIMB Research is neutral on the government’s recent about-turn on toll increases for five highways that were due to take effect last week, noting the decision’s lack of impact on the main highway concessionaires.

“We remain neutral on the toll sector as the weakening economy could put a dent in travel spending. While the decision to pull back the toll rate increases is a surprise, this event is negative for investor sentiment on concessionaire. That said, the reversal is positive for concessionaires from the viewpoint of traffic volume,” it stated in a report yesterday.

According to CIMB, traffic volumes for 2009 had been expected to weaken due to the flagging economy.

“For instance PLUS Expressways Bhd, which expects traffic volume growth in 2009 to be no better than 1% to 2% based on a 5% toll rate increase, it is likely to raise its traffic volume expectations,” explained CIMB.

However, CIMB is not as optimistic going forward for the sector as the outlook for the economy turns increasingly bleak.

“Furthermore, political pressure on future toll rate hikes still appear strong and could lead to more abolishment of toll plazas, going by decisions made on Besraya and the New Pantai Expressway, which are owned by IJM Corp Bhd,” said CIMB, which has a trading buy recommendation on Gamuda Bhd and IJM with target prices of RM2.95 and RM4.53 respectively.

“Gamuda remains a trading buy largely for its construction outlook,” it added.

The company has an indirect exposure to toll roads via its 4% stake in Lingkaran Trans Kota Holdings Bhd, a 30% interest in Shah Alam Expressway and its 52% holding in Sprint.

However, CIMB continued to be neutral on PLUS with a target price of RM3.35.

JPMorgan in comparison, is slightly more positive on PLUS’ prospects with an overweight call on the stock, setting a target price of RM2.94.

“We highlight the strength of the PLUS investment case lies on the dividend stream, given its revised policy of ‘minimum of 70% payout ratio of earnings per share, or 16 sen per share, whichever is higher’. This essentially guarantees a yield of 5.4% of FY09, and is likely a sustainable policy in the long run as well,” said JPMorgan.

JPMorgan noted that with the reversal in the government’s decision, PLUS will essentially revert to the same position in 2008, where the lack of a toll hike would be compensated by the government.

CIMB also said a takeover of toll concessions by the government was unlikely as the cost of acquiring these assets would be too high.  “Takeovers would run counter to the initial purpose of privatisation and would cost up to RM17 billion based on market cap and RM43 billion based on estimated discounted cash flow values.”

At yesterday’s close, PLUS and Gamuda each fell three sen to RM2.91 and RM1.95 respectively while IJM shed four sen to RM3.66.