IJM Corp : Maintain neutral at RM5.25 with TP of RM5.24

IJM Corp upping its stake in Indian highway

IJM Corp Bhd
(Oct 6, RM5.28)
Maintain neutral at RM5.25 with target price of RM5.24: IJM Group has entered into sale & purchase agreements to acquire the ordinary and preference shares in CIDB Inventures Sdn Bhd (CIDBI) and Swarna Tollway Pte Ltd (STPL) from the MTD Group for a total consideration of RM94 million.

CIDBI is principally involved in the construction, development, operation and management of highway projects in India. It was formed to participate in a 30-year concession agreement with the National Highways Authority of India for improvement and upgrading of two highway sections in Andhra Pradesh: (i) Tada to Nellore Section (NH-5); and (ii) Nandigama to Ibrahimpatnam section (NH-9). For FY09, CIDBI recorded a net loss RM940,000.

The core activity of STPL is to operate, maintain and collect toll at NH-5 and NH-9. STPL commenced toll collection upon completion of construction of the project in 2004, and the 30-year concession period will expire in September 2031. For FY10, STPL recorded a net loss of about RM6.5 million.

Upon the success of this deal, estimated sometime in 1Q11, IJM’s stake in CIDBI and STPL will increase to 78.14% and 76.44% respectively.

There could be marginal impact on IJM Group’s earnings due to greater exposures in loss-making entities in the near term. However, prospects are more promising as India’s vehicle population is expected to continue showing robust growth.

We make no change to our forecast and maintain “neutral”. At the current level, the stock is trading at FY11 PER of 18 times and FY12 PER of 16 times, a premium to the sector average of 14 times. Our target price of RM5.24, pegged at 18 times PER (in line with its historical PER), suggests potential total returns of 1% (including dividend yield of 1.2%). — MIDF Research, Oct 6

This article appeared in The Edge Financial Daily, October 7, 2010.