IJM Corporation; Buy; RM5.11

Price Target: RM7.00; IJM MK
Acquires strategic stake in Scomi
IJM has entered into the following subscription agreements with Scomi Group (Not rated) in relation to the
proposed investment of up to a 35% equity stake for RM149.3m.
(a) subscription of 119.1m new ordinary shares of RM0.10 each representing 10% of the existing issued and
paid-up share capital for a total cash consideration of RM39.3m (or RM0.33 per share); and
(b) subscription of redeemable convertible secured bonds of nominal value of RM110m in cash. Scomi has the
option to redeem the bonds in cash at each anniversary of the issue date where the redemption price will be
the nominal value of the bonds plus 10% yield for each full year that the bonds remain outstanding. IJM has
also the option to convert the bonds into new ordinary shares of Scomi at a conversion price of RM0.365 per
Scomi share (translating to 301m shares or 25% of existing issued share capital).
The total acquisition cost of up to RM149.3m is comfortably financed via IJM’s internally generated funds
given its comfortable net gearing of 0.39x as at 30 June 2012. We think the acquisition price appears fair
which is at a 33% discount to its latest quarterly NTA of RM0.49/share and strong prospects going forward
largely driven by Scomi’s 43%-owned Scomi Marine.
Scomi Group recorded revenue and pretax profit of RM850m and RM44m for 1H12, which is a 8% and 27%
increase y-o-y respectively. This was driven by an increase in EBIT from its oilfield services (+11%) and energy
logistics (+94%) divisions while its transport solutions division was in the red. The losses were due mainly to
forex loss for its monorail projects in Mumbai and Brazil. Scomi Group’s gem is Scomi Marine which focuses
on the energy logistics sector, particularly coal mining in Indonesia. It owns 32 tug-and-barge sets and 11
offshore support vessels to service its RM450m outstanding order book. The Group is also in the midst of a
restructuring where Scomi Marine will acquire Scomi Oilfield Ltd (SOL) from its parent Scomi Group. It
controls close to 50% share of the supply of drilling fluids and drilling waste management services in Malaysia
and has an established footprint overseas. A key catalyst could be potential contracts for marginal oil fields.
All in, we are positive on this deal as it will give the group an immediate entry into the growing oil and gas
sector. There are also synergies to be realised between Scomi’s transport and engineering business with IJM’s
impeccable track record in construction and civil engineering.
We maintain our BUY rating and SOP-derived TP of RM7.00 for IJM.