Special dividend in the pipeline for IJM Corp shareholders?

A WINDFALL in the form of a special dividend yielding 11% (based on 50% pay-out), on top of 2% normal dividend may await IJM Corp Bhd’s shareholders in the event of a successful disposal of its 56% stake in IJM Plantation Bhd to Kuala Lumpur Kepong Bhd (KLK).

This, according to Hong Leong Investment Bank (HLIB) Research will culminate in a special dividend of 21 sen on top of FY2022F dividend of 3.8 sen, translating to a total yield of 13.1%.

“Note that we are assuming a 50% pay-out ratio on the sale proceeds,” projected head of research Jeremy Goh in a company update.

“Nonetheless, it is possible for IJM Corp to pay out the proceeds over two to three years. Post-transaction, IJM Corp may also see its SOP (sum-of-parts) ‘conglomerate discount’ narrow with the reduction of operating divisions.”

Yesterday, IJM Corp received an offer from KLK for the proposed acquisition of its 56% stake in IJM Plantation for RM1.5 bil cash or RM3.10/share which translates to a 26% premium over its last closing price.

Conditions precedent for the transaction include (i) IJM and KLK’s shareholders approval; (ii) consent from lenders of IJM and IJM Plantation; and (iii) consent from the relevant authorities.

More broadly, HLIB Research deemed KLK’s offer price of RM3.10 or RM1.5 bil – which may take into account favourable CPO prices – as attractive at 19% premium to its target price of RM2.61 for IJM Plantation.

“Post-sale, IJM Corp could record RM728 mil disposal gain and reduces its earnings profile volatility on the longer term,” reckoned the research house. “We note that in the past, IJM Plantation has been a volatile drag on IJM Corp’s core earnings.”

Pending completion of the deal, HLIB Research maintained its “buy” rating on IJM Corp with a higher target price of RM2.29 (from RM2.11 prevously) after recalibrating its SOP calculations.

“(Its) key catalysts include the Mass Rapid Transit Phase 3 (MRT3) project, the 12th Malaysia Plan (12MP) and potential asset monetisation,” added the research house.

At 9.45am, IJM Corp was up 5 sen or 2.63% to RM1.95 witth 8.11 million shares traded, ths valuing the company at RM8.1 bil. – June 10, 2021

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