- Maintain BUY on IJM Land. Our fair value is pegged to the offer price of RM3.55/share being dished out by parent IJM Corp under the latter’s privatisation proposal of the former.

- Under a scheme of arrangement (Section 176 of the Companies Act), IJM has offered to buyout the remaining 36% it does not own in IJM Land for ~RM2bil or RM3.55/share.

- This is to be satisfied via: (i) the issuance of 279mil IJM shares @ RM6.70/share (~RM1.9bil); and (ii) RM0.20/share in cash (RM112mil). The entire deal is set to be consummated by end-1Q 2015.

- Despite being c.9% lower than our previous fair value of RM3.55/share, we recommend IJM Land shareholders to accept the offer.

- Firstly, the offer of RM3.55/share is at a 15% premium to the fiveday volume weighted average pricing of IJM Land. As such, it enables IJM Land’s shareholders to encash some value upfront, while enjoying future upside potential through IJM’s diversified but growing business units.

- By migrating, IJM Land shareholders will also gain exposure to IJM at an attractive price point of RM6.70/share. This represents a discount of 16% to our fair value of RM8.00/share, and a further 20% assuming the privatisation proposal is passed.

- 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 c.RM12bil.

- From a financial standpoint, 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.

- For instance, we understand that IJM needs to commit ~RM2bil 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 development in Kuantan (60% share of land costs at ~RM178mil).

Source: AmeSecurities