IJM 'outperform', UMW 'hold', IOI Properties 'neutral', Kimlun 'outperform'


  • Business
  • Thursday, 15 Mar 2018

IJM Corp Bhd

By PublicInvest Research

Outperform

Target price: RM3.40

IJM Corp, via its wholly-owned subsidiary IJM Construction Sdn Bhd, has secured the underground package of the Light Rail Transit Line 3 (LRT 3) from Bandar Utama to Johan Setia for a contract sum of RM1.12bil from Prasarana Malaysia Bhd.

Year-to-date, the group’s job replenishment rate is better than expected.

With the new job in the bag, the group’s value of total jobs secured is raised to about RM4bil vis-à-vis PublicInvest Research’s assumption of RM3bil for FY18.

That said, earnings forecasts are kept unchanged for now as the job is clinched nearing the end of the financial year, hence the impact to the research house’s earnings forecasts is not meaningful.

The completion period of the project is 31 months, and assuming 10% profit before tax margin, the contract is expected to contribute an estimated RM85mil during the construction period.

The new job, among others, involves design, construction and completion of an underground tunnel, stations, ancillary buildings and other associated works of the LRT3.

With this new job, the group’s construction order book moved higher to another record high of RM10.4bil.

Going forward, among the new jobs eyed include the East Coast Rail Link (ECRL) project, KL-Singapore high-speed rail and internal jobs, especially from The Light City integrated project (part of Phase 2 of The Light Waterfront Penang) which is estimated to have construction works worth RM1.5bil to RM2bil.

UMW HOLDINGS BHD

By CIMB Research

Hold (No change)

Target price: RM6.70

UMW Holdings (UMW) is proposing a rights issue to finance the potential acquisition of MBM Resources (MBMR).

UMW is proposing to acquire Med-Bumikar’s entire 50.07% stake in MBMR for a cash offer of RM2.56 per share or RM501mil.

If the offer is accepted, UMW will be obliged to undertake a mandatory general offer (GO) for the remaining shares in MBMR at the same offer price.

The consideration for the remaining shares in MBMR will be satisfied either via cash consideration or issuance of new UMW shares at an issue price of RM6.09 per share, based on the exchange ratio of 21 new UMW shares for every 50 remaining MBMR shares.

Under the full cash consideration, UMW will need to raise up to RM1.1bil to satisfy the funding for a 100% stake in MBMR, working capital for the enlarged UMW group post-completion and estimated expenses related to the proposals.

Meanwhile, under the full shares scenario, UMW will need to raise a lower amount of RM559mil, since the remaining MBMR shareholders will swap their shares for new UMW shares.

The proposed rights issue is intended to be undertaken on a full subscription basis whereby UMW plans to procure irrevocable written undertakings from Permodalan Nasional Bhd (PNB) and its fund under management to subscribe in full their respective entitlements under the rights issue.

UMW also intends to procure an underwriting agreement for the remaining rights shares, for which no undertaking has been obtained.

Apart from that, UMW indicated that the RM117.5mil cash portion of the proposed acquisition for a 10% stake in Perodua from PNB Equity Resources will be satisfied via internal funds.

But it is important to highlight that the rights issue will only go through if the proposed MBMR acquisition is completed and the GO is implemented.

If all the necessary approvals are obtained, management expects the proposed rights issue to be completed by the third quarter of 2018.

Under the full cash scenario, the entitlement basis would be one rights for every five UMW shares, at RM4.40 for each rights share.

Accordingly, the exercise will result in the issuance of 244 million rights shares and gross proceeds of approximately RM1.07bil.

Under the full shares scenario, the entitlement basis would be one rights for every 10 UMW shares, at RM4.30 for each rights share.

Accordingly, this would result in the issuance of 130 million rights shares and gross proceeds of approximately RM559mil.

“Based on full cash scenario, we estimate UMW’s FY18 to FY20 earnings per share (EPS) will grow marginally by 1% to 2% due to 25% dilution impact from the issuance of 292 million new UMW shares.

“Based on full shares scenario, UMW’s FY18 to FY20 EPS will grow slightly higher by 3% to 5% due to 22% dilution impact from the issuance of 212 million new UMW shares,” said CIMB Research.

IOI PROPERTIES GROUP BHD

By MIDF Research

Neutral (maintained)

Target price: RM1.89

IOI Properties Group Bhd (IOI Prop) announced that it has terminated a memorandum of agreement (MoA) with Hongkong Land International Holdings Ltd (HKLI) in relation to a proposed joint venture, due to the non-fulfilment of certain conditions precedent.

IOI Prop entered into the MoA with HKLI in June 2017 to set up a joint venture (JV) to develop and manage the prime Central Boulevard site in Singapore.

MIDF Research is negatively surprised by the development as it had previously anticipated the proposed JV to alleviate burden on IOI Prop’s balance sheet.

IOI Prop has successfully bid for 1.09 hectares land in Central Boulevard for a tender consideration of S$2.57bil in November 2016 while HKLI is expected to take up 33% stake or equivalent to S$940mil in the project.

With the call-off of the proposed JV, IOI Prop would have to raise funds for the project.

With the estimated construction cost of around S$700mil to S$800mil, MIDF Research estimates net gearing of IOI Prop to potentially go up to 0.68 times from 0.6 times as of the second quarter of FY18.

“We make no changes to our earnings forecast as the termination of JV with Hongkong Land is not expected to impact the earnings of IOI Prop.

“The potential rising cost of borrowings is likely to be capitalised.

“We revised our target price for IOI Prop to RM1.89 from RM2.09 as we increase our discount to the revalued net asset value (RNAV) to 53% from 48% due to concern over rising net gearing.

“We maintain our neutral call on IOI Prop for its tepid earnings outlook and expected rising net gearing,” said MIDF Research.

 

Kimlun Corp Bhd

By Kenanga Research

Outperform

Target price: RM2.55

KIMLUN’s FY17 core net profit of RM70mil was down 15% year-on-year (y-o-y) despite a higher revenue of 5%.

This was due to the lower precast revenue contribution of 46%, which has much better margins compared to the construction division, leading to an overall drag in the group’s gross profit margin, which went down by two percentage points.

In addition, the company also provisioned for doubtful debts worth RM11mil on aging receivables. The company’s management does not expect to see further provisions for doubtful debts moving into FY18.

Year-to-date, Kimlun has secured RM70mil worth of construction jobs, within Kenanga Research’s FY18 replenishment target of RM1bil. “We believe our target is achievable as Kimlun aims to continue bagging jobs within the affordable homes segment whereby they can leverage on their IBS construction methods as a competitive edge while also aiming for ongoing major infrastructure construction projects, such as Gemas JB double track, RTS, MRT3, ECRL and HSR.

“We believe Kimlun would submit bids at the sub-package levels for these major rail jobs,” said Kenanga Research.

With the recent awards of Deep Tunnel Sewerage System 2 (DTSS2) to main contractors, Kimlun is currently tendering for the precast packages from these main contractors which we expect to be awarded by the second half of 2018.

Additional prospect within their manufacturing division remains bright, especially for the supply of SBG/TLS/rail sleepers for major rail projects in the near future.

Kimlun has supplied an estimated 50% of segmental box girders (SBG) and tunnel-lining segments (TLS) packages for MRT1 and MRT2. Year-to-date, Kimlun has secured RM40mil worth of manufacturing contracts from Singapore MRT, accounting for 13% for Kenanga Research’s FY18 manufacturing replenishment of RM300mil. Currently, Kimlun’s outstanding construction orderbook stands at an estimated RM1.8bil, providing visibility for the next two years.

 

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