News IJM Corporation (IJM) announced yesterday that the strategic disposal of a 38% equity interest in its Kuantan Port Consortium Sdn Bhd (KPC) to Beibu Gulf Holding (Hong Kong) Co., Ltd (Beibu), has been completed. The remaining 2% equity interest in KPC will be disposed to Beibu by Essmarine Terminal Sdn Bhd (a wholly-owned subsidiary of RBH) on a future date to be agreed upon by both parties. Hence, IJM’s stake in KPC is now reduced to 60%.
Comments We are POSITIVE on the news as (i) IJM will pocket in RM334m cash, i.e. 24 sen/share in its book, which we do not rule out can be utilised for higher dividend payout this financial year, (ii) despite the reduced stake in KPC, IJM will be enjoying another 60-year concession period extension to 2072 instead of 2027, hence compensating the reduced earnings from KPC and more importantly higher concession value, and (iii) after this strategic tie-up, we would see the Kuantan Port expanded to a bigger capacity deepwater terminal that will allow vessels up to 200k dwt to berth. That will also boost IJM’s construction orderbook by another RM1.0b in FY15 (external: RM400m).
Outlook Remain bright in the short to long term, driven by RM6.0b WCE highway project, Kuantan Port expansion, and higher FFB growth coupled with higher CPO price recently for its plantation division.
Forecast Earnings forecasts for FY15E tweaked lower by minimal 1.4% to reflect IJM’s reduced stake in KPC.
Rating Maintain OUTPERFORM
We believe the current share price has yet to price in the fundamentals.
Valuation Despite the reduced KPC stake, we adjusted our TP to RM6.74 from RM6.71 after (i) imputing the extension of its concession period up to 2072 and (ii) revised higher the WACC of the port’s DCF to 8% from 7% after taking into account the uncertainty of its port growth over the next 60 years.
Risks to Our Call Delays in construction projects, especially WCE,
Rising building material costs, and
Slower-than-expected property sales.
Source: Kenanga
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