- 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 sum-of-parts (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 after its proposal to buyout the remaining 36% stake it does not own in property arm, 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). (iii) 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; investors seeking exposure to IJM’s property business can now buy into an enlarged IJM with a larger float. (iii) From a financial standpoint, the combined resources with its parent will accord IJM Land with greater financial flexibility and lower cost of funds. This is crucial to meet IJM Land’s increasingly larger funding commitments.  For instance, we understand that IJM needs to commit ~RM2bil just for construction works under the second phases of its The Lights and Tower Bridge (London) developments.

- 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). Orderbook 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. The latter’s traffic is enjoying robust growth prospects, with linkages that provides - 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 sum-of-parts (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 after its proposal to buyout the remaining 36% stake it does not own in property arm, 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). (iii) 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; investors seeking exposure to IJM’s property business can now buy into an enlarged IJM with a larger float.

(iii) From a financial standpoint, the combined resources with its parent will accord IJM Land with greater financial flexibility and lower cost of funds. This is crucial to meet IJM Land’s increasingly larger funding commitments.  For instance, we understand that IJM needs to commit ~RM2bil just for construction works under the second phases of its The Lights and Tower Bridge (London) developments.

- 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). Orderbook 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. The latter’s traffic is enjoying robust growth prospects, with linkages that provides more scalability to IJM’s existing portfolio of highways (e.g. Besraya, LEKAS). 

Source: AmeSecurities