Thursday, October 1

Analysts positive on IJM’s Kuantan Port 40 per cent stake sale to Guangxi

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KUCHING: Analysts are generally positive on IJM Corporation Bhd’s (IJM) disposal of its 40 cent equity stake in Kuantan Port to a strategic investor, Guangxi Gulf International Port Group Co Ltd (Guangxi)for a total consideration of RM334.4 million.

According to analysts Hamzah and Hafiz Hassan from the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), while tdisposal is expected to result in a gain of approximately RM301.2 million, the gain would have no impact on earnings at group level but it will increase its reserve position.

“The disposal will enable the port to managed more efficiently and also to leverage on Guangxi’s wide network of clients.

“We believe that Guangxi’s strong network of customers will attract foreign direct investments, particularly from China to invest in the East Coast Corridor,” they reiterated.

This will contribute positively to the volume of cargoes handled by Kuantan Port. Hence, the analysts expect higher the capacity utilisation of Kuantan Port when the port capacity is increased with the development of a new deep water terminal (NDWT).

Overall, MIDF Research is positive on the execution of share sale agreement as this move could improve the group’s bottom line in financial year 2016 (FY16) onwards despite will of earnings dilution impact expected in FY15.

As the disposal is expected to be completed by the second quarter of FY15 (2QFY15), the research arm maintained its FY14 and FY15 forecast as the disposal will not have any significant effect on both earnings and net assets per share.

Likewise, tresearch arm of Kenanga Investment Bank Bhd (Kenanga Research) ispositive on the development as has finally inked the deal at a slightly higher price than of preliminary valuation of RM310 million.

Based on Kenanga Research’s calculations, the price tag of RM836 million (for 100 per cent stake) for KPC translates into a trailing 10.5-fold price earnings ratio (PER). This is within the range of its peers such as Bintulu Port Holdings Bhd at 17-fold and NCB at 10-fold.

“Based on its existing 30-year concession agreement, we value Kuantan Port at only RM292 million. Furthermore, there will be another extension on the concession period up to 60 years.

“This in turn will lift up our valuation to RM740 million based on a discounted cash flow (DCF) valuation. Hence, the price tag is considered fair, in our view,” the research arm opined.

Despite some concerns that mega projects may be delayed or worse scrapped due to concern over Malaysia’s fiscal and current account position, the research arm does not think IJM will be affected.

“We like the fact that IJM will be the prime beneficiary of the proposed West Coast Expressway (WCE) which will top-up another RM4 billion into IJM’s orderbook.

“Moreover, once the disposal of the Kuantan Port is completed, we can expect another round of orderbook replenishment, that is RM1 billion to RM1.5 billion,” it highlighted.

Overall, Kenanga Research also maintained its forecast pending completion of the disposal (i.e. before end-FYE15).

As such, it maintained its ‘outperform’ recommendation on IJM and its target price of RM6.51 per share based on a sum of parts (SOP) valuation.

As for MIDF Research, it reiterated its ‘buy’ recommendation on IJM with an unchanged target price of RM6.35 per share based on SOP valuation.