IJM Corp Bhd
(May 5, RM7.30)
Maintain buy with a target price of RM8.15: We maintain our “buy” call on IJM Corp Bhd with an unchanged fair value of RM8.15 per share. This pegs the stock at a 10% discount to its sum-of-parts value. 

The latest edition of The Edge weekly highlighted that IJM could be eyeing power assets of  1Malaysia Development Bhd (1MDB) [held under Edra Global Energy Bhd] and that IJM’s board is set to meet this week to deliberate over the matter. 

Quoting industry sources, the weekly said IJM’s management unofficially expressed its interest to 1MDB last month. 

Nevertheless, the report noted that the consent of IJM’s board and clearance from its institutional shareholders will probably be required before any proposal can be pushed through. The report further added that IJM could be looking for partners that have the financial muscle, including government-linked entities; and that Newfields Advisors Sdn Bhd could be advising the group on this deal.

Key institutional shareholders of IJM include the Employees Provident Fund (about 12%), Skim Amanah Saham Bumiputera (about 8%) and Kumpulan Wang Persaraan [Diperbadankan] (5%).

This latest development comes amid reports that Edra Global is close to resubmitting its application to list, pending approval from some of 1MDB’s bondholders. The resubmission exercise to the Securities Commission Malaysia is purported to happen this month. 

Likewise, earlier reports indicated that Edra Global had identified a Middle East consortium that is keen to take over the former from 1MDB, and in turn take it for an initial public offering as its promoters. 

Currently, IJM has a small interest in the power sector via its 20% stake in India’s Gautami Power Private Ltd. We understand that the natural gas-based combined cycle plant (capacity: 469mw) has a concession that runs until 2023. In financial year 2014 (FY14), it contributed a turnover of RM9 million and losses of RM21 million, mainly due to a shortage of gas supplies. 

We, however, make no changes to our earnings forecast and recommendation for now, pending further updates from management. 

We stress that IJM’s rerating catalysts stem from the full consolidation of IJM Land Bhd from FY16 onwards (not reflected in our forecast yet), more contracts from the West Coast Expressway, future upside from the development of industrial land near the Kuantan Port expansion site, phase 2 of The Light Waterfront Penang development, and the possible inclusion into the FBM KLCI 30 Index as one of the five stocks on the current reserve list (next review in June). — AmResearch Sdn Bhd, May 5

This article first appeared in The Edge Financial Daily, on May 6, 2015.