IJM Corp Bhd
(Feb 9, RM6.98)
Maintain buy call with higher fair value of RM8.10 per share. We maintain our “buy” call on IJM Corp with a higher fair value of RM8.10 per share (previous: RM8) at an unchanged 10% discount to its sum-of-parts (SOP) value. The proposed privatisation of its property arm, IJM Land, is on track. 

Shareholders of IJM Corp have consented to the deal at an extraordinary general meeting (EGM) held on Jan 8. Up next is the EGM to seek approval from IJM Land shareholders to be held this Thursday. The entire deal is expected to be concluded by early April.

More importantly, we maintain our view that the proposed merger would be positive for both sets of shareholders as the combined resources with its parent’s will accord IJM Land access to a larger balance sheet, to scale-up to take on larger projects.

The deal is net asset value (NAV) accretive for IJM’s shareholders (+RM0.35 per share to RM8.45 per share) as the group can maximise the earnings potential of IJM Land at the early stages of its new upcycle. At the same time, it would address any concerns over IJM Land’s liquidity.

Equally, we estimate an enlarged IJM to have a market capitalisation of (about) RM12 billion (based on the swap price of RM6.66 per share). 

Prospects for its inclusion in the FBM-KLCI 30 Index remain, as IJM is currently one of five stocks on the index’s reserve list (next review in June).

The operating outlook under an enlarged IJM stable remains bright going forward. 

Order book momentum is gaining traction as IJM has secured three building contracts in quick succession within three months (totalling about RM1.3 billion).

Management is reportedly looking to expand its order book to a record RM7 billion by early financial year 2016 (FY16), with upcoming prospects from the Kuantan Port expansion. 

More upside for order flows may come soon via the balance RM2.2 billion worth of jobs on offer under the West Coast Expressway (WCE).

Last month, IJM was awarded up to RM2.8 billion worth of works by the IJM-Kumpulan 

Europlus joint venture (JV), which is the engineering, procurement and construction contractor for the WCE. 

We expect this project to contribute meaningfully from FY17 (forecast results) onwards.

Apart from its NAV-accretive privatisation moves, we envisage a slew of other rerating catalysts coming up for IJM: (i) privatisation of IJM Land; (ii) balance of works for WCE (about RM2.2 billion); (iii) RM3 billion Kuantan Port expansion (Phase 1: about RM1.8 billion); (iv) KL118 Tower; and (v) commercialisation of Phase 2 of The Lights development. — AmResearch, Feb 9

This article first appeared in The Edge Financial Daily, on February 10, 2015.