IJM Corp Bhd's units Road Builder (M) Holdings Bhd, Arena Wiramas Sdn Bhd and RB Port Sdn Bhd have entered into a share sales agreement to dispose their equity stakes in several companies to Eastern Pacific Industrial Corp Bhd (EPIC) for RM240mil cash. The companies involved are RB Plantations Sdn Bhd, Konsortium Pelabuhan Kemaman Sdn Bhd (KPK), Pilihan Alam Jaya Sdn Bhd, Sensasi Wawasan Jaya Sdn Bhd and Sukma Samudra Sdn Bhd. IJM told Bursa Malaysia that this would enable it to unlock the value of its assets in Kemaman, Terengganu. “The expected gain on the proposed disposal is about RM123mil, which will be recognised in the financial year ending March 31, 2014 upon its completion,” the company said. (Source: The Star)

Comment:

We view the move positively as it enables IJM to realize the value of Kemaman Port and focus their attention and resources into the Kuantan Port, which is deemed more yielding as compared to the low-yielding Kemaman Port. Kuantan Port recorded RM91.7m in pre-tax profit on the back of revenue of RM174.9m in FY2012 while Kemaman Port registered revenue and pre-tax profit of RM16.3m and RM4.8m respectively in the same period. In terms of profitability, Kuantan Port has a more superior pre-tax margin of 52.4% as compared to the 29.3% achieved by the Kemaman Port. The expected gain on disposal of RM123m will be recognized in FY2014, thus we adjust our FY2014 earnings forecast, taking the gain into account. That results in a 20% increase in FY2014 net profit from RM524m to RM628m.

Maintain BUY with Target Price of RM6.32, based on SOP valuation. We continue to like IJM due to its well diversified businesses and the award of WCE shall be seen as catalyst to the stock.

Source: JF Apex Research - 3 Jun 2013