KUALA LUMPUR (June 14): Kenanga Research views that IJM Plantations Bhd’s shareholders should accept Kuala Lumpur Kepong Bhd (KLK)’s takeover offer, as it is a fair offer that is attractive.

In a note, Kenanga Research’s Adrian Kok opined that the RM3.10 per share and 10 sen dividend per share translate into an enterprise value (EV) per planted hectare (ha) of RM54,000, which is in line with market prices.

Kok noted that IJM Plantations' estates are distributed between Sabah (41%) and Indonesia (59%), with an average EV per planted ha of RM80,000 and RM40,000 respectively. This gives the aggregated estates an average market price of around RM56,000.

The analyst added that the implied FY22 price-to-earnings ratio (PE ratio) and price-to-book value (PBV) of the offer is 23.6 times and 1.9 times, which is at a premium of 41% and 101% respectively to IJM Plantations’ closest upstream peer Hap Seng Plantations Holdings Bhd and deemed to be highly attractive. Hap Seng Plantations’ EV per planted ha is RM39,000.

“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,” Kok added.

As such, the Kenanga analyst argues that shareholders are likely to vote in favour of the acquisition.

He highlighted that once the sale and purchase agreement turns unconditional, this will trigger a mandatory general offer (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 [the] closest peer — PER (41% premium), PBV (101% premium), EV/planted ha (39% premium),” he said.

Last week, IJM Corp Bhd agreed to sell its entire 56.2% stake in IJM Plantations to KLK for RM1.53 billion or RM3.10 per share. IJM Corp is expected to net a disposal gain of RM700 million.

The move is still subject to approval of shareholders and lenders at a yet to be convened extraordinary general meeting (EGM). Once approved, IJM Plantations will cease to be its subsidiary.

That said, IJM Corp will continue to be entitled to the dividend of 10 sen per share in July that was declared by IJM Plantations.

At 11:35am, shares in IJM Corp were trading 1.04% or two sen higher at RM1.95 per share, valuing it at RM7.1 billion. IJM Plantations shares were up 0.65% or two sen at RM3.08, now yielding a market capitalisation of RM2.71 billion. Meanwhile, KLK shares were unchanged at RM21.50 apiece, translating into a market capitalisation of RM23.29 billion.