A chance for minorities of IJM Plantations to exit

Improved earnings: A worker transporting fresh fruit bunches to the mill. IJMP group’s improvement in recent earnings has largely been contributed by the advancement in commodity prices.

PETALING JAYA: Most brokerages are recommending minority shareholders of IJM Plantations Bhd (IJMP) to accept the attractive takeover offer by plantation giant Kuala Lumpur Kepong Bhd (KLK).

This is following the acceptance by IJMP’s major shareholder IJM Corp Bhd of the RM1.53bil cash takeover by KLK, as well as the key details of the takeover unveiled by KLK last Friday.

MIDF Research in its latest report opined that the takeover bid by KLK for a 56.2% stake in IJMP at an offer price of RM3.10 per share from IJM Corp “appears attractive enough for IJMP minorities to accept, while the deal is fair for KLK to obtain a controlling stake in IJMP.”

KLK will also subsequently serve a mandatory general offer (MGO) for the rest of IJMP’s minority shareholders at the same offer price.

The research house pointed out that “based on our observation, IJMP has been registering losses for the past few years and only managed to return to profitability in the financial year 2020 (FY20).

“Given the erratic earnings trend at IJMP, we think this is a good opportunity for IJMP shareholders to exit.

“Furthermore, after peaking in 2016, IJMP’s share price and valuations have also been languishing prior to the KLK’s offer.

“Coupled with the environmental, social and governance concerns, we think it is unlikely for IJMP’s share price to return to its prior peak levels, ” said MIDF Research.

IJMP group’s improvement in recent earnings has largely been contributed by the advancement in commodity prices, the research house added.

However, given the fluctuation in the group’s earnings in the past few years, MIDF Research opined the offer by KLK presents a good opportunity for IJMP shareholders to exit.

“We also recommend investors to accept the mandatory offer by KLK at RM3.10 per share, once it is served, ” it added.

MIDF Research noted that the KLK’s offer of RM3.10 per share has valued IJMP at 19 times price-earnings ratio (PER) – which is a premium to its valuation of RM2.62, which is based on FY22 PER of 16 times.

Meanwhile, UOB Kay Hian (UOBKH) said ascribing RM68, 000 per planted ha for IJMP’s Sabah estates, IJMP’s Indonesian estates would be valued at US$10, 000 (RM41, 150) per planted area, which it deems to be fair as it is close to the recent transacted prices in the region.

“An offer price of RM3.10 per IJMP share is fair with forward PER of 19.8 times of forecast FY22 (based on our earnings estimate of RM138.5mil for IJMP’s FY22 net profit), ” it said.

It added that KLK intends to maintain the listing status of IJMP on the Main Market of Bursa Malaysia unless the former receives valid acceptances pursuant to the proposed MGO or KLK acquires more IJMP shares, resulting in KLK holding 90% or more in IJMP. Third is if IJMP does not comply with the public spread requirement of at least 25% of its total listed shares.

“Having said that, we expect KLK to privatise IJMP once KLK receives valid acceptance pursuant to the proposed MGO as the deals result in a win-win situation for both KLK and IJM, ” it added in its note to clients.

However, both KLK and IJM Corp would need to get their respective shareholders’ greenlight for the deal to go through.

Meanwhile, CGS-CIMB Research in its latest report on KLK is reiterating an “add” call on the plantation giant while describing its proposed takeover bid on IJMP as earnings accretive.

KLK revealed that the acquisition was in line with its plans to grow its oil palm business through mergers and acquisitions.

The funding will be via internal funds and bank borrowings, which KLK will pay RM30.7mil or 2% of the purchase consideration as earnest deposit.

CGS-CIMB added that the acquisition will raise KLK’s total planted oil palm area by 60, 966ha (or 28.6%) to 274, 377ha.

KLK expects to deliver synergies through increased efficiency, optimisation of processing facilities and cost savings from logistics.

All the estates of IJMP are located in the same regions where KLK has well-established and sizable plantation estates, namely in Sabah, Kalimantan and Sumatra.

KLK also expects the acquisition to contribute positively to its future financial performance, added the research house.

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