The long-awaited privatisation of IJMLAND by its parent, IJM, has materialized. The offer price to acquire IJMLAND at RM3.55 is considered attractive against our TP of RM3.31 and is at a 14.9% premium to its 5-day VWAP. We are positive on the privatisation as IJMLAND has difficulties realizing its value due to its illiquid shares, although consensus has a unanimous ‘BUY’ on the stock. The other major rationale for the privatisation is for IJMLAND to tap into a bigger balance sheet and resolve RPT issues. We raise our TP from RM3.31 to its offer price of RM3.55 and recommend ACCEPT OFFER.

Details of privatisation by way of scheme of arrangement. The offer price to acquire IJMLAND by its parent, IJM, is RM3.55 per share (or a total consideration of RM1.98b) will be satisfied by 0.5 IJM shares based on IJM’s issue price of RM6.70 and cash of RM0.20 per IJMLAND share. The acquisition price of RM3.55 is at a 14.9% premium to IJMLAND’s 5-day VWAP of RM3.09 while IJM’s issue price of RM6.70 is only 0.9% premium to its 5-day VWAP of RM6.64. The timeline to complete the exercise is within 7-8 months (refer overleaf).

A matter of time. Running up to the privatisation of IJMLAND by its parent, IJMCORP, the market had been on a speculation overdrive that the privatisation will happen. As it is, the rumour of privatisation has always been around as the stock is extremely illiquid with its parent holding 64.15% while it is a highly institutionalized stock, making it relatively illiquid vs. its peers, not to mention that property makes up the biggest earnings driver of IJMCORP (>50%). Hence, it was always a question of timing and pricing.

Rationale for privatisation. The rationale is for IJMLAND to gain a bigger balance sheet from its parent to grow more rapidly; for e.g. IJM has RM3.0b MTN programme which has not been fully drawn down. We also gather that cost of funding for its parent is also relatively cheaper. IJMLAND has a lot of heavy CAPEX requirements with Royal Mint @ London project, Pantai Sentral infrastructure works and Nasa City mall. They are also working on the upcoming The Light Phase 2 commercial which carries GDV of c.RM3.0b, of which a large portion will be held for investment purposes. The group wants to grow its recurring income base and will need a bigger balance sheet to house these properties while being able to land bank aggressively when the time is right. Ultimately, the privatisation resolves the tight liquidity issues at IJMLAND level, align shareholders of both companies into one entity as they both share similar shareholders (e.g. EPF, PNB, KWAP, GIC), reduce RPTs and enjoy more synergies.

We are positive on the privatisation. The acquisition price of RM3.55 is at a 7% premium to our TP of RM3.31 (15% discount to FD RNAV of RM3.89). This is also at a 9% discount to our FD RNAV of RM3.89, which is close to its historical low RNAV discount rate of 0% (historical discount to RNAV range for IJMLAND is 0%- 35%). It also implies FY15E core PER of 15.0x and FY15E PBV of 1.6x which is slightly below its historical average of 17x Fwd PER but above its historical average 1.4x Fwd PBV. More importantly, we would like to highlight to shareholders that while the offer price of RM3.55 is lower than the swap price during the merger attempt with MRCB (which fell through) of RM3.65 back in Nov-2010, we think that IJMLAND’s share price would not see strong and sustainable rallies above RM3.00 until M&A news surfaces. Since its inception, the tightly held stock has had difficulty breaking the RM3.00 level convincingly, although consensus call on the stock has always been leaning heavily towards a ‘BUY’ while the stock also appears to have garnered strong investors confidence. We reckon that this is a good opportunity for investors to maximize the value of IJMLAND.

Is it worthwhile for IJMLAND shareholders to own IJMCORP shares? Besides the points mentioned above, we believe IJMCORP is worth a re-look as our construction analyst has revised IJMCORP’s TP to RM7.57 (from RM6.83) post the privatisation, implying a 15% upside to IJM’s issue price of RM6.70. Additionally, IJMLAND’s shareholders will be joining a bigger entity which enables IJMLAND to grow more aggressively. After privatising IJMCORP, the stock will be trading at FY15-16E PER of 17x-14x.

Source: Kenanga