- Maintain BUY on IJM Corp, with an unchanged fair value of RM6.84/share, based on the sum-of-parts methodology.
- In an announcement to Bursa Malaysia, IJM revealed that the Public Private Partnership (PPP) unit of the Prime Minister's Department has decided not to proceed with IJM's proposal for the extension of the New Pantai Expressway (NPE).
- Recall, IJM had last April received an approval-in-principle from the federal government to embark on this project that entails a 10km-long extension of the existing NPE. The contract was initially estimated at ~RM1bil.
- The existing NPE route is about 19.6km-long, starting from Subang Jaya (west end) and ending in Bangsar (north end).
- The extended stretch was supposed to be mainly constructed on elevated grounds ' starting from the Bangsar end of the existing route.
- It was reported earlier that a supplemental agreement was to have been signed last October to consummate the terms of the deal.
- We expect this latest development to be a slight negative newsflow-wise, although it does not come as a complete surprise to us. Furthermore, IJM has said that it would appeal against the decision ' with a revised alignment.
- This is crucial, as the existing highway extension would punch through densely populated areas within the city centre, where there are already a number of new highway/rail projects that has been mooted ' including the Sg.Buloh-Kajang MRT.
- We make no changes to our earnings assumptions, as we had previously not included the NPE extension project into our new order book assumptions for FY13F.
- Backed by a healthy order book of ~RM4bil, IJM is still lining up a few more project bids, including the RM7bil West Coast Expressway.
- This comes just after the local press reported earlier this month that the group has secured a RM120mil contract to build a special maintenance depot for the Seremban railway station.
- We believe the bulk of the negative newsflow has already been priced-in at current levels (ytd: -8%). A near-term catalyst could come from the upcoming launch of its Rimbayu development near Kota Kemuning slated for August (Phase 1: 250 units).