News    On 31st May 2013, IJM Corp announced that its subsidiaries comprising Road Builder (M) Holdings Bhd, Arena Wiramas Sdn Bhd and RB Port Sdn Bhd have entered into a Shares Sale Agreement (“SSA”) to dispose their equity interest in the few companies and assets to Eastern Pacific Industrial Corporation Berhad (“EPIC”) for a total cash consideration of RM240m. 

Comments    The Proposed Disposal is conditional upon EPIC obtaining the approval from the Economic Planning Unit (EPU)  in respect to the disposal of the 39% equity interest  in Konsortium Pelabuhan Kemaman (KPK), within 3 monthsfrom the date of the SSA or a further extension period of 1 month from the expiry of the initial 3 months as the case may be.

The proposed disposal is in line with IJM Corp’s shortmedium term plan to unlock the value of its assets  in Kemaman. The expected gain on the Proposed Disposal is c.RM123m and will be recognized in FY14. The proceeds will be utilized to finance the RM3.0b planned expansion of Kuantan Port in which IJM Corp and Guangxi (60:40) will develop a new deep-water terminal. Recall, in February 2013, IJM Corp entered into a MoU agreement with Guangxi for proposed disposal of 40% in Kuantan Port. 

All in, we are Positive on the deal as IJM continues to realize its asset value and get more concentrated on the lucrative business (i.e. Kuantan port expansion). This is the third proposed disposal so far this year. 

More importantly, we believe that IJM Corp will be appointed as the main contractor for the Kuantan Port expansion project. We believe the project will at least replenish RM1.0b in IJM’s orderbook in the short-medium term.

Outlook   External order book currently stands at RM2.0b which would provide IJM’s earnings visibility for 2 years. Going forward, it is expected that orderbook will be replenished from 1) WCE (RM4.0b) 2) Kuantan Port expansion (Phase 1: RM1.0b) and 3) high-rise buildings (government job).

Also, we are upbeat on its property division as IJM Land is targeting to launch up to GDV RM3.0b (vs RM2.0b in FY13) worth of new and on-going projects, including new phases of Rimbayu, Seri Riana 2b, Pantai Central Park, Seri Binjai@Seremban, Condominium project in JB City Center.

Forecast   Relatively unchanged. Nonetheless, we estimate IJM Corp to gain a one-off profit of RM485m if all the proposed disposals materializes. 

Rating   Maintain MARKET PERFORM

Since IJM has limited upside already after the share price rally post-GE13 (YTD: +17%), we are maintaining our MARKET PERFORM rating.

Valuation    We are maintaining our TP of RM5.90 based on SoP valuation

Risks   Further delay in WCE awards.

Rising building material costs. 

Source: Kenanga