IJM (3336) : IJM’s disposal of highway in India could lead to higher dividends next year
IJM Corp Bhd (Dec 9, RM6.58)
Outperform with a target price (TP) of RM7.66. IJM announced that it has entered into a conditional Share Purchase and Debenture Subscription Agreement (SPDSA) to dispose of its 100%-owned Jaipur-Mahua Tollway Pte Ltd (JMTPL) to ISQ Asia Infrastructure I-A Pte Ltd (IIA) for 5.25 billion rupees (RM296 million). The disposal is subject to closing audit and adjustments pursuant to the SPDSA.
The disposal will be initially for 74% of the equity shares and the balance 26% of the equity shares shall be disposed of upon obtaining the approval from the National Highways Authority of India.
We were positively surprised with the news as we estimate IJM is selling the highway at 2.76 times price to book value (PBV) as the group mentioned that it estimated a gain of RM188 million from selling the highway. We expect the gain will be booked as early as the fourth quarter 2015 (4Q15). Hence, our sum-of-parts valuation would also be increased by 11 sen/share to RM7.66 from the current RM7.55 as we have only imputed in 1 times PBV for all of its Indian highways.
Post-disposal, after removing approximately RM200 million worth of borrowings attached to this highway and adding the cash proceeds, we expect IJM’s net gearing to improve to 0.39 times from 0.45 times as at 2Q15.
Cash proceeds received could potentially lead to higher dividend next year as we see no major capital expenditure plan for IJM after the SILK highway deal was called off recently. Currently, we only estimate IJM to pay 15 sen dividend per share (DPS) in financial year 2016 (FY16).
Assuming half of the gains will be distributed to shareholders, our DPS would be raised to 20 sen. This implies a decent gross 3% yield.
We reaffirm our view that IJM is in the midst of entering a new phase of growth as almost all of its businesses are in “earnings expansion mode” as: (i) it has a fat construction order book of RM5.1 billion and potential new wins of RM1-RM2 billion which will provide earnings visibility for at least the next four years, and (ii) it is in the midst of completing the IJM Land’s privatisation exercise (3Q15) which would then boost its profit after tax and minority interest by another 20% in FY16.
We advocate investors to accumulate IJM given its deep value backed by its exciting near- and long-term growth prospects. — Kenanga Research, Dec 9
http://www.theedgemarkets.com
IJM Corp Bhd (Dec 9, RM6.58)
Outperform with a target price (TP) of RM7.66. IJM announced that it has entered into a conditional Share Purchase and Debenture Subscription Agreement (SPDSA) to dispose of its 100%-owned Jaipur-Mahua Tollway Pte Ltd (JMTPL) to ISQ Asia Infrastructure I-A Pte Ltd (IIA) for 5.25 billion rupees (RM296 million). The disposal is subject to closing audit and adjustments pursuant to the SPDSA.
The disposal will be initially for 74% of the equity shares and the balance 26% of the equity shares shall be disposed of upon obtaining the approval from the National Highways Authority of India.
We were positively surprised with the news as we estimate IJM is selling the highway at 2.76 times price to book value (PBV) as the group mentioned that it estimated a gain of RM188 million from selling the highway. We expect the gain will be booked as early as the fourth quarter 2015 (4Q15). Hence, our sum-of-parts valuation would also be increased by 11 sen/share to RM7.66 from the current RM7.55 as we have only imputed in 1 times PBV for all of its Indian highways.
Post-disposal, after removing approximately RM200 million worth of borrowings attached to this highway and adding the cash proceeds, we expect IJM’s net gearing to improve to 0.39 times from 0.45 times as at 2Q15.
Cash proceeds received could potentially lead to higher dividend next year as we see no major capital expenditure plan for IJM after the SILK highway deal was called off recently. Currently, we only estimate IJM to pay 15 sen dividend per share (DPS) in financial year 2016 (FY16).
Assuming half of the gains will be distributed to shareholders, our DPS would be raised to 20 sen. This implies a decent gross 3% yield.
We reaffirm our view that IJM is in the midst of entering a new phase of growth as almost all of its businesses are in “earnings expansion mode” as: (i) it has a fat construction order book of RM5.1 billion and potential new wins of RM1-RM2 billion which will provide earnings visibility for at least the next four years, and (ii) it is in the midst of completing the IJM Land’s privatisation exercise (3Q15) which would then boost its profit after tax and minority interest by another 20% in FY16.
We advocate investors to accumulate IJM given its deep value backed by its exciting near- and long-term growth prospects. — Kenanga Research, Dec 9
http://www.theedgemarkets.com
