KUALA LUMPUR (Apr 6): Boustead Holdings Bhd is currently in talks with the government on how implement the controversial Automated Enforcement System (AES), which is targeted to track traffic offences, says its deputy chairman and group managing director Tan Sri Lodin Wok Kamaruddin.

Boustead is in the midst of buying a 50% equity stake in Irat Properties Sdn Bhd, which will be taking over the concession to operate AES from two companies – ATES Sdn Bhd and Beta Tegap Sdn Bhd.

The conglomerate is paying RM127.8 million in cash for the equity interest in Irat.

However, Lodin declined to reveal the price for Irat to take over the concession.

Speaking at the press conference after the group’s annual general meeting this morning, Lodin said, "The acquisition of ATES and Beta Tegap is done on the understanding that we (Boustead) should be able to unlock the value in our investments."

"We are finalising the terms with the government in terms of ensuring how the project can be undertaken. We will supply the cameras and will have a role in helping educate the public on how to observe rules and regulations," he added.

Lodin said that there will be minor changes to the current concession agreement terms but Boustead (fundamental: 0.65; valuation: 2.0) is looking to achieve 18% to 20% return on its investments in taking over the operations of AES and for a longer concession period.

According to Lodin, Boustead is looking to install up to 500 new cameras across the country in the future.

So far only fourteen cameras have been installed under the current concession.

Under the current five-year concession terms, ATES and Beta Tegap were supposed to operate and maintain AES equipment and eventually hand them over to the Road Transport Department at the end of concession.

Further, the rate of return for both companies was capped at 17%, and it was to be remunerated based on a three-tier structure. Under the first tier, both companies would be entitled to RM16 per valid summons up to five million summonses.

After reaching more than five million summonses, tier two would kick in, with the additional revenue to be split evenly between the two companies and the government up to a cap of RM270 million each.

After hitting the cap, tier three would kick in with the companies each receiving 7.5% from the remaining revenue and the government the rest.

But both companies would only be paid if motorists settle their summonses.

In the meantime, both ATES and Beta Tegap are embroiled in a lengthy arbitration process with the government after Putrajaya abruptly took over the AES operations from the private operators.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)