NOT POLITICAL, NOR BAILOUT
SO WHAT THEN???
IJM tells analysts Scomi buy “not political, not bailout”
Business & Markets 2012
Written by Ho Wah Foon of theedgemalaysia.com
Thursday, 27 September 2012 10:38
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KUALA LUMPUR (Sept 27): The management of IJM CORPORATION BHD [] yesterday held a briefing for more than 80 analysts and fund managers and told them that its move to buy up to 25.08% stake in oil and gas play SCOMI GROUP BHD [] was not political and purely business.
According to a report by CIMB researcher Sharizan Rosely, IJM managing director Datuk Teh Kean Ming said the deal marks IJM's exposure to the lucrative local oil & gas sector and rail jobs overseas.
In the exercise, IJM will subscribe to a 10% stake in Scomi for RM39.3million and another 15% via subscription of convertible bonds for RM110 million. IJM's investment in Scomi would amount to RM149.3 million, to be satisfied by its cash of RM1.9 billion.
Post-deal, IJM is expected to emerge as the single largest shareholder with a 25% stake in Scomi, with board representation in Scomi Group, Scomi Group's 42.8% associate Scomi Marine and Scomi Group's 67.4% subsidiary Scomi Engineering.
According to CIMB, the IJM management yesterday argued that its decision to acquire a stake in Scomi was "purely a business deal with no political strings attached".
It also said the investment is “timely” as it provides IJM a cheap entry into the oil & gas segment. But it acknowledged that Scomi is in need of funds to satisfy its bond repayment of RM200 million by the end of this month. This is now deferred pending this deal.
Defending its decision which did not go down well with investors, the IJM management highlighted that Scomi has been shortlisted to tender for Petronas's risk service contracts and was reportedly in the running for two marginal field jobs worth between US$600 million and US$1 billion each.
Also, Scomi is one of the three major rail car manufacturers in the world. Scomi's total outstanding order book now stands at RM2.9 billion and is good for another 2-3 years.
IJM's management explained Scomi’s reported losses in FY10-11 was largely due to impairment and forex losses and its 1H12 RM19.5 million net profit looks sustainable as the business is turning around.
But IJM also acknowledged that Scomi's management should address investors' poor perception of Scomi's execution and future prospects.
Despite the lengthy briefing, CIMB is not fully convinced by IJM.
“We are neutral to slightly negative on this exercise and takeaways from the briefing…Yesterday's briefing shed some reassurance but we are more lukewarm on this for now,” CIMB’s analyst said.
Early today, CIMB cut the target price of IJM to RM5.30 from RM6.40, but called for a “trading” buy on the stock as it had been oversold after falling 11% in the last two days.
“This move by IJM was a big surprise and may take time to attract buy-ins from investors. But reassurance comes from IJM's track record in past M&As,” the CIMB report said.
Another analyst who attended the briefing told the theedgegemalaysia.com that he is still pondering what recommendations to write as he is not fully convinced.