- Maintain BUY on IJM Corp with an unchanged fair value of RM6.79/share; pegged at an unchanged 10% discount to its sum-of-parts (SOP) value.

- IJM has entered into a share sale agreement to dispose off a 40% equity interest in Kuantan Port Consortium Sdn Bhd to Guangxi Beibu Gulf International Port Group Co Ltd. This follows an MoU signed by them back in February 2013. KPC is the owner and concession holder of Kuantan Port up to 2027 under the current agreement.

- The disposal consideration for KPC is RM334mil, c.RM24mil or 8% higher than initial estimate of RM310mil. This works out to an implied acquisition PE of ~10.5x. For FY13, KPC registered a 17% YoY growth in net profit and revenue, respectively, at RM80mil and RM205mil.

- Briefly, the new privatisation agreement also includes:- (i) An extension of the existing Kuantan Port concession for a further 60 years; and (ii) Joint-development of a new deepwater terminal in Kuantan.

- More importantly, this deal represents another significant marker towards driving IJM’s expansion plans in Kuantan Port. From here, IJM and Guangxi Beibu are moving to formalise a 60:40 pact to develop c.700 acres of land located north of Kuantan Port.

- The total investment outlay for this expansion programme is believed to be RM4bil. The construction of a 4.7km-long breakwater (c.RM1bil) is reportedly already underway.

- Both parties are also seeking to secure a written undertaking from the Malaysian government to bear the dredging cost at this new deepwater port – to be executed in two phases (Phase 1 - 16m deep; Phase 2 - 18m deep).

- Pending the finalisation of its funding structure, we gather that Phase 1 (c.RM2bil) is set to commence by year-end and take two to three years to be completed. We make no changes to our forecasts pending more concrete details.

- Overall, we are positive on this new deal on three counts:- (i) The expansion of Kuantan Port could potentially double its throughput capacity to c.52 mil tonnes when fully completed. (ii) The strategic network of Guangxi Beibu would boost Kuantan Port’s hinterland; the former is seeking investors for a steel mill, an aluminium-processing plant and edible oil processing plant at Kuantan. (iii) Provides c.RM2bil worth of job opportunities for IJM under Phase 1 alone.

Source: AmeSecurities