IJM Corp special dividend seen from planned plantation arm sale proceeds

IJM Corp special dividend seen from planned plantation arm sale proceeds
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KUALA LUMPUR (June 10): IJM Corp Bhd is expected to pay shareholders a special dividend from proceeds of the group's planned sale of its 56.2% stake in IJM Plantations Bhd to Kuala Lumpur Kepong Bhd (KLK) for RM1.53 billion or RM3.10 per share, according to analysts including those from Maybank Investment Bank Bhd and Hong Leong Investment Bank Bhd.

Hong Leong analyst Jeremy Goh wrote in a note today that the research firm reckons the proposed transaction could result in a special dividend of 21 sen a share from IJM Corp on top of its 3.8 sen dividend for the financial year ending March 31, 2022 (FY22).

According to Goh, the expected cumulative dividends from IJM Corp translate into a yield of 13.1%.

"Note that we are assuming a 50% payout ratio on the sale proceeds. Nonetheless, it is possible for IJM Corp to pay out the proceeds over 2-3 years, in our view.

"With this transaction, we estimate IJM Corp would record a RM728m one-off gain on disposal while net gearing could reduce from 0.43x to 0.39x by our estimates.

"The deconsolidation of IJM Plantations would reduce IJM Corp's FY22-23f earnings by -17/-10% (assuming 50% of cash proceeds are reinvested at c.4%). However, we note that this is mainly driven by higher assumptions of CPO (crude palm oil) prices of late. We note that in the past, IJM Plantations has been a volatile drag on IJM Corp's core earnings.

"This is an opportunistic sale on the part of management leveraging on favourable CPO prices. Going forward post-sale, IJM Corp's earnings profile would be more stable with the exclusion of its plantation business," he said.

Goh maintained Hong Leong's "buy" call on IJM Corp shares with a higher target price (TP) of RM2.29 from RM2.11 previously.

According to him, Hong Leong has taken into account factors including the higher value for IJM Plantations at RM3.10 a share from RM2.61 previously.

Maybank Investment Bank also expects a special dividend from IJM Corp from the proceeds of the proposed sale of its plantation arm to KLK.

Maybank analyst Wong Chew Hann wrote in a note today that the RM1.53 billion cash proceeds from the planned sale of the IJM Plantations stake is equivalent to 42 sen per IJM Corp share.

"We expect part of this proceeds to be distributed back to IJM Corp's shareholders. We are positive, expect a special dividend (from IJM Corp)," Wong said.

While maintaining Maybank's "buy" call on IJM Corp shares, she said Maybank raised its IJM Corp TP to RM2.18 from RM1.96 to reflect the offer from KLK to buy IJM Corp's stake in IJM Plantations.

At Bursa Malaysia's 12.30pm break today, IJM Corp's share price rose five sen or 2.63% to RM1.95, valuing the group at about RM7.08 billion.

IJM Corp has 3.63 billion issued shares.

Read also:
IJM Plantations shares jump close to 23.6% to 3½-year high on offer from KLK
KLK offers to buy IJM Plantations’ shares from IJM Corp for RM1.53 bil

Chong Jin Hun