IJM Corporation - The Lights Phase 2 to kick off by 2Q next year BUY, 1 Jun 2015

We maintain our BUY call on IJM Corp with an unchanged fair value of RM8.20/share, pegged at an unchanged 10% discount to its NAV. The Star reported that works on Phase 2 of IJM’s The Light Waterfront development will start by the second quarter of next year. According to the report, the mixed development project will have an indicative GDV of ~RM4bil. With the development cost being pegged at RM3bil, the indicative development margin is c.25% on our initial estimates.

The details were revealed during a signing ceremony between IJM Land and Singapore’s Perennial Real Estate Holdings Ltd to jointly develop the project (50:50), held last Friday. Recall that back in April, Aura Hebat Sdn Bhd – the vehicle that will executive the project – had acquired the 33-acre parcel of freehold land for RM403mil from Jelutong Development Sdn Bhd. The said land represents slightly over one-third of the commercial parcel for The Lights, we estimate.  This comes as IJM recently completed the privatisation of its property arm, IJM Land.

From our channel checks, the project’s tentative components include a shopping mall, thematic shops, residential towers, an office tower, two hotels and a convention centre with a total gross floor area (GFA) of c.4mil sf. The Star report indicated that the convention centre will take four years to complete. The entire development is to be completed in phases over seven years, starting from 2018.  We re-iterate our view that the deal with Perennial paves the way for IJM to crystallise upfront, part of the land value for Phase 2 of The Light, which mainly comprises commercial components.

Moreover, the JV with Perennial will provide IJM with a strong platform to kick-start development works under Phase 2, and further lift the pricing prospects for the residential components under Phase 1 as well as upcoming residential towers under Phase 2. At the same time, we envisage some in-house work opportunities that IJM’s construction division can reap from the estimated RM3bil development cost. We leave our earnings and NAV forecast unchanged for now pending a more detailed breakdown of the project’s components. IJM’s property division (including investment properties) accounts for c.RM3.74/share or 41% of our NAV.