IJM Corp - Refocusing on domestic prospects, 23 Jul 2015

IJM Corporation - Refocusing on domestic  prospects

We maintain our BUY call on IJM Corp with an unchanged fair value of RM8.20/share (10% discount to NAV). We view positively IJM’s recent move to dispose its effective 98.5% stake in Swarna Tollway, India to MAIF Investments India 3 Pte Ltd for around RM597mil.

IJM’s holds a 70% stake in Swarna through IJM Investments (M) Ltd, and another 30% through 95%-owned CIDB Inventures Sdn Bhd (CIDBI). However, the disposal of CIDBI’s stake (c.RM189mil) is pending the necessary regulatory approvals within 42 months from the completion of this exercise. We reckon that IJM’s move to gradually increase its stake in Swarna since October 2010 to the current 98.5% was to increase the highway’s size and visibility ahead of the proposed disposal. 

The deal represents IJM’s third asset disposal in India after the Trichy and Jaipur-Mahua highways. More importantly, IJM appears to be unlocking its Indian concession assets at decent values, we believe, as domestic prospects for both its infrastructure and construction divisions gain traction. Based on the gain on disposal of c.RM93mil from the 70% stake held by IJM Investments, we estimate the sale to have been concluded at an implied P/BV of ~1.3x. Also, with a potential boost of RM588mil (c.RM0.39/share) in its cash pile on its effective 98.5% stake in Swarna, we do not discount the possibility of part of it being returned to shareholders by way of a special dividend.

Notably, the group declared a special dividend of RM0.10/share in FY14 when it disposed off stakes in Trichy Highway in India, Kemaman Port, as well as Kuantan Port. We make no changes to our earnings forecast for now pending more updates. Backed by a record outstanding orderbook, IJM is well-positioned to ride a new wave of infrastructure spending in Malaysia ahead of the 11th Malaysia Plan (11MP) period. Progress on the West Coast Expressway (WCE) should be in full swing following the firming up of financing recently. More is to come as IJM could be in the running for the balance RM2.2bil worth of works under WCE.

Over at Kuantan Port, apart from additional construction works for the port’s expansion program, IJM Land is set to reap future benefits from the development of the Malaysia-China Kuantan Industrial Park (MCKIP) and MCKIP II developments nearby. Both projects could reportedly generate a potential GDV of over RM3bil. Likewise, phase 2 of The Light Waterfront development in Penang could kick off by 2Q 2016 through the IJM Land-Perennial Real Estate Holdings JV.

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