IJM Corporation - Emerging with a 10% stake in Scomi? Buy

- Maintain BUY on IJM Corp with an unchanged fair value of RM6.38/share – based on the Sum-Of-Parts methodology. TheEdgeFinancialDaily  reported today that IJM may emerge with a 10% stake in oil & gas entity, Scomi Group – where an announcement appears imminent today. 

- The daily reported that IJM may take up the new shares in Scomi in an exercise that will see the latter raise some RM42mil based on its share price of RM0.35/share yesterday. The deal will also see Maju Holdings Sdn Bhd Executive Chairman Tan Sri Abu Sahid Mohamed raise his stake in Scomi to 8.7%.

- If the acquisition pans out, IJM will end up being  the second largest shareholder within the Scomi Group after its CEO Shah Hakim @ Shahzanim Zain. 

- Shah Hakim has a collective 14.9% stake in Scomi that is held through private companies, Kaspadu Sdn Bhd and Onstream Marine Sdn Bhd. Datuk Kamaluddin, the son of former Prime Minister Tun Abdullah Ahmad Badawi – is the other shareholder within these grouping.

- Just two weeks ago, the Malaysian Rating Corp Bhd had downgraded Scomi’s RM200mil debts owing to delays the group encountered in completing an asset sale in Nigeria that is expected to rake in RM58mil. For the six months ended June 2012, Scomi recorded RM19mil a net profit (-28% YoY) against total revenue of RM851mil (+8% YoY). 

- We are slightly surprised by this development and maintain a neutral view pending more details. The move appears to be part of IJM’s strategic move to gain  a foothold in the oil & gas business. 

- IJM’s previous exposure to the oil & gas industry was through fabricator Torsco Sdn Bhd – which owned a fabrication yard in Lumut, Perak. IJM sold Torsco Kencana Petroleum Bhd back in August 2007 for RM75mil. IJM also previously held a stake in a subsidiary of Eversendai Corp before hiving it off prior to Eversendai’s listing last year.

- IJM’s initial entry cost (if any) into Scomi would be minimal for now. Equally, we wonder if there could be synergies between IJM’s prowess in rail-related civil engineering works and Scomi Engineering (Scomi’s 67% unit). 

- Scomi has monorail jobs in Mumbai, India. It has also been shortlisted for projects in Brazil (Sao Paulo, Manaus) and Bangalore in India. 

- Back home, Scomi was awarded the RM494mil KL Monorail Fleet Expansion project back in December 2010. Interestingly, there has also been proposal to extend the existing KL Monorail Service to Old Klang Road.    

Source: AmeSecurities