IJM Corporation - Kuantan Port expansion Buy

- Maintain BUY on IJM Corp with an unchanged fair value of RM6.38/share – based on the Sum-Of-Parts methodology. Bernama reported during the Invest in Asean: Promotion Conference on Asean Industrial Park that plans are afoot to deepen Kuantan Port’s channels. This forms part of the proposed Malaysia-China Kuantan Industrial Park (MCKIL) in Gebeng, Kuantan.

- The Bernama report added that the Malaysian government had recently approved the proposal to develop Kuantan Port into a deep water port with an 18-meter draught. This in turn, would enable the port to cater for vessels of up to 40,000 dead weight tonnes (DWT). 

- The expansion will help reposition MCKIP as a gateway to the Asean, Far East and Asia Pacific market. To be sure, MCKIP is strategically located in Kuantan and faces the South China Sea. The East Coast port provides the most direct link to the deepwater Qinzhou Port in China  and other ports within the Guangxi Autonomous Region.

- Poignantly, MCKIP is the first industrial park in Malaysia that is to be jointly developed with China – and the first bilateral project to be accorded national status. 

- Located within the ECER Special Economic Zone, MCKIP spans over 607 acres. The various industries being targeted by MCKIP include manufacturers of equipment for plastics & metals, automotive components, fibre cement boards, stainless steel products, food processing, carbon fibre, electrical & electronics products, information & communications technology and consumer products.  

- This government-to-government initiative appears to be a reciprocal move following the launch of the ChinaMalaysia Qinzhou Industrial Park launched by Prime Minister Datuk Seri Najib Tun Razak back in April 1. The entire construction works – including reclamation - is set to be completed by 2016. 

- While details remain sketchy at this juncture, we expect construction works to kick off in 2013. IJM Corp will likely emerge as a key beneficiary of this project, which may cost over RM1bil – on our initial estimates.  

- Notably, IJM owns the Kuantan Port concession – where its deep embedded value within the infrastructure division appears to have been masked by unrealized forex exchange losses incurred by the group’s Indian toll operations in recent years. 

- For FY12 (ending 31 March), Kuantan Port’s earnings surged 85% YoY to RM91mil on a 21% YoY jump in throughput volume (15.4 million tonnes) and a tariff hike. This accounted for ~11% of the group’s FY12 pre-tax profit.

Source: AmeSecurities