IJM’s management called for an analyst briefing yesterday to explain its recent proposal to buy a stake in Scomi Group. Since its Bursa announcement on Monday, IJM shares have plunged by more than 11%, shedding some RM700m in market cap in three trading days. While not denying that the proposed RM150m investment in Scomi may be a higher risk-reward endeavour, we believe that investor concerns are overdone and that there is scope for optimism as Scomi comes off a corporate revamp. Hence, we maintain our TRADING BUY call, at unchanged FV of RM6.32 for now.
May boost jobs flow. IJM said the investment is targeted at expanding its footprint in the O&G segment by capitalizing on Scomi’s niche in the provision of drilling fluids and drilling waste management services. It intends to ride on Scomi’s existing Petronas licence by jointly bidding for civil and infrastructure-related O&G jobs with the former. Meanwhile, the group is also eyeing the possibility of partnering with Scomi to tender for monorail jobs, with the support of subsidiary Scomi Engineering, which has a footprint in Brazil and India and whose niche is in the provision of rolling stocks.
Corporate revamp close to completion. Management is confident that Scomi would eventually be out of the woods as its three-year corporate restructuring nears completion. To recap, Scomi has been disposing of some of its businesses over the last
three years and has raised more than RM1bn, with the latest move being the proposed disposal of Scomi Nigeria in May this year for USD40m. In February this year, the company also proposed to merge its oilfield services division with 42.8%-owned associate Scomi Marine to form an integrated O&G marine and drilling services provider. With Scomi’s transport and marine logistics businesses gradually getting back on track as its O&G division gains strength, IJM believes that Scomi’s EBITDA could potentially grow by as much as 40% from FY12’s normalized RM80m-RM90m, based on our back-of-the-envelope calculations.
TRADING BUY. At first glance, the proposed stake acquisition in Scomi may appear to be more of a bailout given that RM150m out of Scomi’s total outstanding bonds of over RM500m are due by month-end. Nonetheless, we see this as an opportunity for IJM to strengthen and enlarge its footprint by capitalizing on Scomi’s core strengths in O&G and transport logistics. We do not discount the possibility of further capital injection from IJM should Scomi secure one or two marginal oilfields, as speculated by the media, since this should translate into better earnings accretion for IJM in the long term. Valuation-wise, IJM’s share price has retraced by more than 11% since the acquisition was announced. As we believe that stock price has overreacted to investors’ concerns, we maintain our TRADING BUY call for now, at an unchanged RM6.32 FV.
May boost jobs flow. IJM said the investment is targeted at expanding its footprint in the O&G segment by capitalizing on Scomi’s niche in the provision of drilling fluids and drilling waste management services. It intends to ride on Scomi’s existing Petronas licence by jointly bidding for civil and infrastructure-related O&G jobs with the former. Meanwhile, the group is also eyeing the possibility of partnering with Scomi to tender for monorail jobs, with the support of subsidiary Scomi Engineering, which has a footprint in Brazil and India and whose niche is in the provision of rolling stocks.
Corporate revamp close to completion. Management is confident that Scomi would eventually be out of the woods as its three-year corporate restructuring nears completion. To recap, Scomi has been disposing of some of its businesses over the last
three years and has raised more than RM1bn, with the latest move being the proposed disposal of Scomi Nigeria in May this year for USD40m. In February this year, the company also proposed to merge its oilfield services division with 42.8%-owned associate Scomi Marine to form an integrated O&G marine and drilling services provider. With Scomi’s transport and marine logistics businesses gradually getting back on track as its O&G division gains strength, IJM believes that Scomi’s EBITDA could potentially grow by as much as 40% from FY12’s normalized RM80m-RM90m, based on our back-of-the-envelope calculations.
TRADING BUY. At first glance, the proposed stake acquisition in Scomi may appear to be more of a bailout given that RM150m out of Scomi’s total outstanding bonds of over RM500m are due by month-end. Nonetheless, we see this as an opportunity for IJM to strengthen and enlarge its footprint by capitalizing on Scomi’s core strengths in O&G and transport logistics. We do not discount the possibility of further capital injection from IJM should Scomi secure one or two marginal oilfields, as speculated by the media, since this should translate into better earnings accretion for IJM in the long term. Valuation-wise, IJM’s share price has retraced by more than 11% since the acquisition was announced. As we believe that stock price has overreacted to investors’ concerns, we maintain our TRADING BUY call for now, at an unchanged RM6.32 FV.
Source: OSK
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