News

IJM announced that it has acquired a 50% stake in Aura Hebat Sdn Bhd (AHSB). AHSB is the JVcompany between The Light Waterfront (TLW) (100%- owned by IJM CORP) and Perrenial Penang Pte. Ltd.

Subsequently, AHSB is acquiring a parcel of land measuring 32.8 acres located within the Group’s existing “The Light Waterfront” development in Penang for RM402.8m (RM282.3 psf). This parcel of land is owned by IJM’s 80%-owned subsidiary, Jelutong Development Sdn Bhd (Jelutong).

Comments

We are positive on the announcement as it signals that IJM is getting ready to develop Phase 2 of its successful project, The Light. Note that this piece of 32.8 acres of land is part of The Light Phase 2 project’s total land size of 90 acres.

After accounting for its effective stake post disposal (effectively 40% of the land), we estimate IJM will raise proceeds of RM161.1m and also book-in disposal gains of RM80.0m (pretax).

Estimated GDV of RM3.0b. The GDV for this piece of 32.8 acres of land is estimated at RM3.0b which consists mostly commercial development, i.e. shopping mall and thematic shops, residential towers, an office tower, two hotels and a convention centre with a total GFA of about 4.1m sf, excluding carparks.

However, impact to our property FD RNAV is minimal. We have accounted for The Light Phase 2 (GDV: RM6.0b) based on the assumption of GDV/ac of RM63m. However, this deal implies GDV/ac of RM91m or 44% higher. If we were to impute this higher assumption and raise The Light Phase 2 GDV to RM8.6b, it would only increase IJMLAND’s FD RNAV by 2% to RM6.2b, which would not materially affect our valuation of IJM.

Outlook

We reaffirm our view that IJM is in the midst of entering a new phase of growth as most of its major earnings drivers are in “expansion mode” given: (i) a fat construction orderbook of RM7.0b which will provide five-year earnings visibility, and (ii) the completion of IJM Land’s privatisation exercise, which would boost its net profit by another 20% in FY16.

Forecast

Unchanged, pending details on the execution and the launch of The Light Phase 2.

Rating

Maintain OUTPERFORM

Valuation

We advocate investors to accumulate IJM given its deep intrinsic value, which is backed by its exciting near and long-term growth prospects.

Our TP is tweaked slightly lower to RM7.93 (from RM8.00 previously) as we update the actual number of shares after the privatisation of IJM Land. Our TP implies 18.6x FY16 PER, which is at higher-end of bigcap contractors’ valuation that ranges from 16-18x.

Risks to Our Call

Lower-than-expected orderbook replenishment

Slower-than-expected construction progress

Higher-than-expected input costs

Lower-than-expected property sales

Source: Kenanga Research - 22 Apr 2015