PETALING JAYA: IJM Corp Bhd’s proposed takeover of Road Builder Holdings Bhd (RBH) will potentially create a Malaysian infrastructure and construction giant in the international market place.
The recent exit of RBH’s single largest shareholder Tan Sri Chua Hock Chin, and IJM’s proposal to acquire all the assets and liabilities of RBH for RM1.56bil, come at a time when more offshore opportunities are being available for local players.
Given that the local market is quite limited, companies that are armed with the right technical and financial capability should take their skills to the world market.
Although the Ninth Malaysia Plan (9MP) projects are expected to keep local players busy in the next three to five years, the excess capacity will once again weigh down on the industry, especially the smaller players.
One way to overcome this challenging environment is for companies to opt for the merger and acquisition (M&A) route.
As stated by IJM Corp chief executive officer and managing director Datuk Krishnan Tan, the company was at the point where it was beyond organic growth, and the only way was through acquisition.
Post-merger around June next year, IJM’s enlarged assets of close to RM7bil and market capitalisation of RM4.5bil will make it the largest construction group in the country.
“A whole lot of opportunities are opening up in many parts of the world, especially India, China and the Middle East. The onus is on Malaysian companies to build up capability to reach out to those markets,” Krishnan said.
The big talent pool at IJM and RBH will come in handy in the company’s international ambitions.
Analysts said in the short term, RBH shareholders stood to gain more from the M&A exercise than IJM shareholders due to the expected earnings dilution of the expanded IJM share capital. But the long-term benefits were expected to be quite considerable.
With the proposed one-for-two voluntary general offer of one new IJM share at RM6 for every two RBH shares, IJM is expected to issue an additional 260 million new shares that will expand its share capital by 52.3% to 760 million shares.
The offer price of RM3 per share values RBH shares at 6% premium over their 12-month high of RM2.83.
An analyst at AmReseach said the merger could be earnings accretive for IJM over the longer term.
The management expects IJM to reap RM20mil from synergistic benefits of the enlarged group.
“RBH shareholders stand to gain international exposure from IJM’s presence in the high-growing Middle East and Indian markets,” he added.
Locally, RBH’s toll concessions and ports fit into IJM’s diversification plans to derive a broader and more diversified earnings base. Earnings from infrastructure are expected to increase to 21% from 3% now.
Meanwhile, OSK Research is not overly concerned with the earnings dilution of the enlarged IJM. Being the largest construction company, IJM will be well-placed as one of the frontrunners in the rollout of the 9MP projects.
The improved performances of both RBH’s toll operations from Besraya and New Pantai Expressway at an estimated growth of 10% and 15% respectively bode well for earnings going forward.
As for the port division, the development of Kemaman Port’s capacity with the successful set-up of Grange Resources iron ore pellet plant and other users should help the group churn out potential revenue of RM230mil.
Meanwhile, RBH’s 70% property subsidiary RB Land Holdings Bhd may also offer upside potential with the planned launch of four new projects at a combined gross development value of RM700mil.
After taking RBH private, IJM’s strong branding will offer new opportunities for the enlarged company.
As Krishnan pointed out, “except for IJM’s plantation and RBH’s port operations, we are similar in many ways – in terms of institutional shareholding and operational capability.”
Of course, the invaluable human skills and concession assets from the RBH acquisition will place IJM in a much higher league than its other local competitors.
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