Pending shareholders’ approval at an EGM, we think the votes are likely to be in favour of the disposal. This will then trigger an MGO and KLK will extend the same offer (RM3.10/share + RM0.10 DPS) to the remaining shareholders. We recommend ACCEPT OFFER given the premium valuations against closest peer – PER (41%), PBV (101%), and EV/planted Ha (39%).

Conditional SPA. IJM Corp (IJM) has agreed and entered into a conditional SPA with Kuala Lumpur Kepong’s (KLK) for the disposal of the entire 56.2% stake in IJM Plantations (IJMP) for an offer price of RM3.10/share + RM0.10 DPS payable to IJM on 30 July 2021. The acquisition is still subject to shareholders’ approvals at EGM which will be convened at a later date.

Fair price, attractive for shareholders. The offer price of RM3.10/share + RM0.10 DPS translates into an EV/planted Ha of c.RM54k (in line with market price). IJMP’s estates are located in Sabah (41%) and Indonesia (59%) with an average EV/planted Ha of c.RM80k and c.RM40k, respectively – giving the aggregated estate an average market price of c.RM56k. Meanwhile, the implied FY22E PER/PBV is 23.6x/1.9x (41%/101% premium to closest upstream peer HSPLANT) which is highly attractive. EV/planted Ha for HSPLANT is c.RM39k. Operationally, we believe IJMP will benefit from the synergy of its operations in Sabah, East Kalimantan, and Sumatra as well as KLK’s more efficient production cost structure.

No changes to earnings estimate.

ACCEPT OFFER of RM3.10. We think shareholders are likely to vote in favour of the acquisition. Upon the SPA turning unconditional, this will trigger a MGO and KLK will extend the same offer to the remaining shareholders. KLK does not intend to maintain IJMP’s listing status should they achieve 90% acceptance. We recommend IJMP shareholders to accept the offer given the attractive valuations against closest peer – PER (41% premium), PBV (101% premium), EV/planted Ha (39% premium).

Source: Kenanga Research - 14 Jun 2021