PETALING JAYA: Shareholders of IJM Corp Bhd
will have to weigh whether their investment is better served by the company remaining an independent listed entity or by accepting Sunway Bhd’s voluntary takeover offer announced in mid-January at RM3.15 per share in a cash-and-share deal totalling RM11bil.
Last Friday, the independent advisor for the exercise, M&A Securities, together with IJM’s board of directors, recommended that shareholders reject Sunway’s offer, deeming it “not fair” and “not reasonable”.
M&A Securities valued IJM shares at RM5.84 to RM6.48 per share, or RM20.5bil to RM22.7bil, while secondary financial adviser Rothschild & Co Malaysia valued them at RM4.80 to RM5.63 per share, or RM16.8bil to RM19.7bil.
IJM closed one sen lower yesterday at RM2.31, with 5.22 million shares traded.
To convince shareholders, IJM highlighted three major initiatives to unlock value: listing its Malaysian and Singaporean construction assets, exiting the Indian market where it holds infrastructure and property assets, and monetising mature highway assets such as the Sungai Besi Expressway or Besraya and Kajang-Seremban Highway or Lekas.
According to IJM chief executive officer and managing director Datuk Lee Chun Fai, the offer significantly undervalues the company and its earnings potential.
“If shareholders accept the offer, they will share IJM’s future growth with others and capture only about 20% of that upside,” he told a media briefing yesterday.
“By remaining with IJM, shareholders retain full exposure to the company’s long-term growth potential,” Lee added, noting that Sunway’s offer comes at the low point of IJM’s earnings cycle but at the high point of its asset value.
He noted that the initiatives to unlock value would make it easier for the market to estimate the worth of the company’s businesses. IJM comprises construction, property, industry, and infrastructure divisions, including tolls and a port.
“So, a pure play exposure gives us the avenue for the market to price some of these businesses appropriately in the marketplace,” Lee said.
He believes that the earnings would be reflected better if these businesses were listed separately, rather than remaining diluted in the present structure.
The company estimates a two-year timeline for these initiatives to bear fruit, with Lee pointing out that certain investment assets in the infrastructure and property businesses take time to mature and value to crystallise.
“Anything that’s good for shareholders to deliver value, I’m sure shareholders would appreciate that as well,” he said.
An industry source told StarBiz that Sunway’s offer presents a choice to shareholders in which IJM’s assets and capabilities can be integrated into a larger group with different strategic synergies, capital allocation priorities and operational leadership.
Because only a small proportion of the offer would be paid in cash, IJM shareholders would still be able to participate in the future value creation of a larger listed entity.
“They are not being asked to walk away from the company’s future,” the source said. “Seen in this light, the choice facing shareholders is not simply whether to ‘sell’ or ‘not sell’.
“Rather, it’s a decision about which pathway offers the best chance of realising the full potential that even the independent advisor’s report acknowledges exists.”
The source also questioned IJM’s share price performance, given the independent advisor’s emphasis on the company’s intrinsic value.
“If IJM’s potential is as compelling as described, why has the company’s market performance not reflected that value more clearly over time?”
Sunway’s offer enables IJM shareholders to look more closely at the company’s financial performance, its unrealised potential and the options available.
“One thing is clear, the question of how to realise IJM’s full potential is now firmly on the table. And that conversation is unlikely to fade away, regardless of the offer’s outcome,” the source said.
A majority of the analysts covering IJM have maintained their “buy” call on the stock, with most advising investors to accept the offer.
Affin Hwang Investment Bank, which reiterated its recommendation to accept the offer, has maintained a “buy” call and a target price (TP) of RM3.
The brokerage noted that its conservative forecast reflects the lack of publicly available information, especially for IJM’s property business.
“We are less able to assess the port and toll valuations, as the independent advice circular did not disclose sufficient operating assumptions,” it said.
UOB Kay Hian (UOBKH) Research also advocated for investors to consider the offer due to the decent upside, but acknowledged that risks have emerged due to growing noise that could affect the acceptance rate.
It maintained a “buy” call and a TP at the offer price, as the research house feels the independent adviser’s valuation appears unrealistic.
As it stands, several government-linked investment companies own an estimated 48% of IJM, and concerns over the offer’s future has quickly crystalised with Permodalan Nasional Bhd, which owns a 13.5% stake, rejecting the offer.
“Nonetheless, we still see value in IJM at its current price. Even if the deal is unsuccessful, our readjusted TP of RM2.71 (based on pre-voluntary takeover offer discount of 20% to sum-of-parts) still represents a 15% upside. However, the share price could see reactionary weakness immediately after the close date for the offer should the deal fail to go through.
“Overall, while we are largely conservative on its prospects, IJM could present a compelling value proposition either way should it successfully monetise its assets and crystallise the value locked in some of its early-stage projects,” UOBKH Research added.
Sunway’s offer requires that it gets more than 50% of the voting shares in IJM on or before April 6. Should the acceptance threshold not be met by then, then IJM remains a listed company.
