- Maintain BUY on IJM Corp with an unchanged fair value of RM6.95/share; pegged at a10% discount to its sum-of-parts (SOP) value.

- The Edge Malaysia revealed that Kumpulan Europlus (KEuro) will likely embark on a fundraising exercise ahead to strengthen its balance sheet ahead of financial close for the West Coast Expressway (WCE) project. The weekly paper added that a bulk of the funds would be raised through cash calls.

- This comes after MWE Holdings bought into K Euro via the purchase of a 22.1% stake in the latter for RM156mil or RM1.35/share. The stake was purchased from Tan Sri Chan Ah Chye and Sze Choon Holdings Sdn Bhd.

- Prior to this, MWE had acquired 26 mil K Euro shares or a 5% stake on July 10 & 11 via a direct business transaction (DBT) for RM30mil or RM1.14/share.

- After the deal, we estimate that MWE would surface as K Euro’s largest shareholder with a 27.4% stake, followed by IJM Corp at 23.8% stake. Interestingly, IJM had on 9 July 2013, acquired 4.6 mil shares of K Euro for an undisclosed amount.

- K Euro had in January this year, entered into a concession agreement (CA) for the WCE project at a revised cost of ~RM5.2bil following a 25% reduction in the highway length. The 224km-long highway will stretch from Banting in Selangor to Taiping in Perak, with a 40km stretch linking Ipoh to the WCE to be built later.

- K Euro owns 80% of West Coast Expressway Sdn Bhd (WCE Sdn Bhd), the concessionaire for the WCE – with IJM holding the balance 20%. Hence, IJM’s effective stake in WCE is now ~39.1%.

- Assuming a debt/equity structure of 80:20, we estimate equity requirements of ~RM1bil to kick-start the WCE. With MWE now in the picture, we expect the imminent roll-out of the WCE project to gain further traction – both from an operational and funding standpoint.

- The corporate manoeuvring aside, it is worth noting that K Euro has a joint-stake in the RM11bil-GDV Bandar RImbayu which the group is co-developing. IJM was also instrumental in helping some of K Euro associate Trinity Corp’s housing projects more than seven years ago, including the RM2.2bil Puncak Jalil township project.

- Just based on just a 20% share of capex works of the RM5bil capex cost and effective 39% stake in the WCE, we estimate a 6% accrement to IJM’s fair value to RM7.37/share.

Source: AmeSecurities