IJM Corp; Buy; RM5.72
Price Target: RM6.70; IJM MK

IJM has announced the proposal disposal of Kemaman Port with accompanying land to Eastern Pacific Industrial Corporation for a consideration of RM240m. This will result in a net gain of RM123m (RM0.09/share) for IJM which will be recognised in FY14F.

The rationale for the disposal is to focus its resources on the expansion of Kuantan Port which is in the midst of developing a deep-water terminal. Recall IJM has entered into a MOU with a strategic investor, Guangxi Beibu Gulf International Port Group Co. Ltd for the disposal of 40% equity interest in Kuantan Port Consortium Sdn Bhd where it has until August to convert this to a definitive agreement.

We view the disposal positively as it will optimise the resources utilisation for IJM into higher yielding assets such as Kuantan Port. For FY12, Kemaman Port generated just RM16.3m in revenue and RM4.7m in pretax profit vs RM13.4m and RM2.9m in FY11. This is just 1% of its group FY13 revenue and pretax profit. As a comparison, for FY12, Kuantan Port’s pre-tax profit increased by 85% to RM91.7 million on the back of higher turnover of RM174.9m (+40% y-oy) mainly due to increased cargo throughput and a tariff revision in May 2011. We understand FY13F financial performance will remain robust from expansion of berth capacity by 600m.

There will unlikely be any special dividends to minority shareholders from this disposal given the monies will be channeled for the redevelopment of Kuantan Port. We maintain our BUY rating and SOP-derived TP of RM6.70 for IJM.

Source: HwangDBS Research - 3 Jun 2013