KUCHING: The infrastructure sector is set for revamp as a result of change in accounting treatment in the fiscal books of concessionaires.
TRYING TIMES: The infrastructure sector will be revamped as a result of change in accounting treatment in the fiscal books of concessionaires.
According to RHB Research Institute Sdn Bhd (RHB Research), the two major impacts of IFRIC 12 on concessionaires, namely PLUS Expressways Bhd and Puncak Niaga Holdings Bhd, the first being that concessionaires could no longer recognise concession assets as tangible assets.
It added this was the case because the concessionaires did not control the use of the infrastructure and they only had the right to operate the infrastructure.
This would result in a reclassification of concession assets from tangible assets to either financial assets, intangible assets or a mixture of both, according to the research house.
The second impact was that concessionaires who currently amortise concession assets using the revenue method would have to switch to either the straight line or use of volume method which would potentially result in higher amortisation charges leading to lower reported earnings.
RHB Research reported that the reclassification of the concession assets of PLUS and Puncak Niaga from tangible assets to intangible assets in its balance sheet would turn their net tangible assets (NTAs) into the negative.
To recap, IFRIC 12 – Service Concession Agreements which covered accounting treatment of service concession agreements such as “service concession”, “build-operate transfer” and “rehabilitateoperate- transfer” in the financial statements of the operator was targeted to take effect in Malaysia from July 1 2010, highlighted the research firm.
It was reported that the affected companies were likely to migrate into this new accounting practice by the next financial year-end.
Earnings forecasts were maintained for now as there was uncertainty as to when the new amortisation method would be adopted and also the migration into IFRIC 12 might be delayed further given that several issues arising from the change in accounting treatment were yet to be resolved, the research house revealed.
RHB Research stated PLUS’s fair value at RM4.13 per share and a decent dividend yield of five to six per cent per annum.
The research firm mentioned Puncak Niaga’s fair value at RM2.95 per share.