AmWatch - IJM Corporation : Privatising IJM Land BUY, 10 Jun 2014

STOCK FOCUS OF THE DAY

IJM Corporation : Privatising IJM Land    BUY

Maintain BUY call on IJM Corp with our fair value lifted from RM7.10/share to RM8.00/share, pegged to an unchanged 10% of its SOP value. Our higher fair value mainly reflects the inclusion of IJM’s effective 38% stake in the West Coast Expressway (WCE) concession, with more upside likely to come following its proposed buyout of the remaining 36% stake it does not own in IJM Land.

The privatisation of IJM Land is worth ~RM2bil. It is to be satisfied via:- (i) the issuance of 559mil IJM shares at RM6.70/share; and (ii) RM112mil in cash (RM0.20/share). The entire deal is set to be concluded by end-1Q 2015.  Overall, we are positive on this move on a few counts:-

(i) Via this exercise, IJM can maximise the robust earnings outlook of its property arm. This will expand IJM’s FY16F-17F FD EPS by 2%-3% respectively, and its SOP value (RM8.40/share) by a further 5% (RM0.40/share); (ii) An enlarged IJM will generate more visibility, with its market cap rising to ~RM12bil vs. Gamuda’s RM10bil. At the same time, it would address any concerns with IJM Land’s liquidity; and  (iii) From a financial standpoint, the combined resources with its parent will accord IJM Land with greater financial flexibility and lower cost of funds.

There is renewed order book optimism for IJM as construction margins begin to normalise. Outstanding orders are at a record RM5bil, including c.RM2.8bil already secured from West Coast Expressway (WCE). Order book momentum should accelerate with several upcoming tenders that include another RM2.2bil worth of jobs under WCE, Kuantan Port expansion Phase 1 and the Four Seasons Hotel building works. 

We envisage further NAV upside from:- (i) the Kuantan Port expansion; and proposed acquisition of SILK highway for ~RM398mil.

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Others :

IJM Land : A win-win deal             ACCEPT OFFER

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QUICK TAKES

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