IJM Land among top gainers on Bursa over privatisation news

KUCHING: IJIM Land Bhd (IJM Land) was the top gainer yesterday on Bursa Malaysia with more than 9.53 shares traded on the back of its proposed privatisation. Its shares rose 36 sen or 11.46 per cent at closing.

IJM Corporation Bhd (IJM Corp) had proposed to privatise its 64.15 per cent owned subsidiary IJM Land for RM3.55 per share.

The estimated acquisition costs RM1. 98 billion or 558.8 million of IJM Land shares, which will be satisfied by the issuance of one IJM Corp share at RM6.70 per share for every two IJM Land share and cash consideration of RM0.20 per IJM Land share.

TA Securities Bhd’s research wing (TA Research) opines that the premium is justifiable given the group’s strong management team, solid track record, very strategic and sizeable landbanks, as well as resilient township development in Bandar Rimbayu, Seremban 2.

“While the offer price of RM3.55 per share is at about 13 times price earnings ratio (PE) based on consensus’ CY15 net profit estimate – which is higher than PE ratio of 12 times and eight times of CY15 earnings for its peers SP Setia Bhd and Mah Sing Group Bhd respectively based on our inhouse estimates – it is still lower than our target PE of 14 times for IJM’s property division.

“It is estimated that IJM Land has close to 5,000 acres of undeveloped landbanks with estimated potential gross development value of about RM40 billion.

“We deem the offer price fair and we are positive on the proposed privatization as it is earnings accretive to IJM Corp.”

By migrating, AmResearch Sdn Bhd (AmResearch) says IJM Land shareholders will also gain exposure to IJM Corp at an attractive price point of RM6.70 per share.

“This represents a discount of 16 per cent to our fair value of RM8 per share, and a further 20 per cent assuming the privatisation proposal is passed,” it said.

“At the same time, it would address any concerns with IJM Land’s liquidity.

“Investors seeking exposure to IJM’s property business can now buy into a more liquid entity with an enlarged market cap of circa RM12 billion.”

From a financial standpoint, AmResearch believed the combined resources with its parent will accord IJM Land with greater financial flexibility and lower cost of funds.

“This is crucial to meet IJM Land’s increasingly larger funding commitments, it said.

“For instance, we understand that IJM needs to commit about RM2 billion just for construction works under the second phases of The Lights and Tower Bridge (London) developments.

“Other upcoming commitments include infrastructure works for Bandar Rimbayu and Pantai Sentral Park as well as IJM Land’s maiden foray into industrial park