Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on April 19, 2021 - April 25, 2021

THE valuation of IJM Corp Bhd — one of Malaysia’s largest conglomerates with diversified businesses ranging from construction and property development to plantation and industrial assets — has become attractive enough for rival Sunway Bhd to buy its shares, taking up a 4.95% stake as at March 31.

The sum-of-parts value of IJM’s businesses and assets could be worth more than what the market is valuing them now. IJM closed at RM2.01 last Friday, valuing it at RM7.32 billion.

However, this is far from the real value of IJM’s businesses as a standalone entity, given the discount the market imputes on conglomerates and holding companies as they are deemed to be inefficient structures.

A few conglomerates have taken the cue and reorganised their group structures, including Sime Darby Bhd, Sunway and IOI Corp Bhd. In 2017, Sime Darby was demerged into three distinct groups — Sime Darby, Sime Darby Plantations Bhd and Sime Darby Property Bhd.

The reorganisation of Sunway into the pure-play Sunway Construction Group Bhd in 2015 was a successful value-unlocking exercise for the group. IOI Corp’s listing of its property development business, IOI Properties Group Bhd, back in 2013 led the way for many conglomerates to follow.

IJM’s plantation subsidiary, IJM Plantations Bhd (IJMP), is listed on Bursa Malaysia. However, there are a lot more assets within IJM that are still locked up among the various businesses it has, say observers.

“Anyone who buys shares in IJM can see that the group has a lot of assets that are undervalued. Its construction business has order books of around RM5 billion, which can sustain it for over two years. Its property business is also large and picking up, and it has Kuantan Port as well,” says an observer.

First, looking at IJM’s stake in IJMP, the 56.2% stake is valued at close to RM890 million. This is based on IJMP’s market value of RM1.59 billion as at last Friday’s closing price of RM1.81 per share.

However, analysts covering the stock have a consensus target price of RM2.32 per share, giving the plantation business a 25% upside from its market value.

If that target price is deemed as fair value for IJMP, IJM’s stake in the group would be valued at RM1.1 billion.

However, if the plantation business were to be sold, the valuation would be based on a per hectare basis. IJMP has 60,979ha of plantation land in Sabah, as well as in East Kalimantan and South Sumatra in Indonesia.

With about 40% of IJMP’s hectarage in Sabah, and taking the valuation set by Kim Loong Resources Bhd’s acquisition for 1,158ha of plantation land in Sandakan at RM79,905 per hectare, as announced in February, the value of IJMP’s land in Sabah alone would be RM2.44 billion.

Based just on the value of the Sabah land bank, IJMP already makes up a third of IJM’s market value.

Besides the plantations business, IJM also owns toll concessions in Malaysia, India and Argentina. In Malaysia, IJM has stakes in concession holders for the Sungei Besi Expressway, the New Pantai Expressway, the Kajang-Seremban Highway and the West Coast Expressway (WCE).

The WCE is currently under construction at a cost of RM6.69 billion. IJM owns 26.5% of WCE Holdings Bhd, which owns 80% of West Coast Expressway Sdn Bhd, the concession holder of the expressway. An IJM subsidiary, Road Builder (M) Holdings Bhd, owns the remaining 20%.

The 233km highway has a 60-year concession period.

WCE Holdings is listed on Bursa Malaysia. Last Friday, the counter closed at 46.5 sen per share, valuing the group at RM852.6 million. This means that IJM’s 26.5% stake in WCE Holdings is worth RM225.94 million.

What would be the total value of the WCE concession if someone were to buy it over from WCE Holdings and Road Builder?

CGS-CIMB Research values IJM’s 20% stake in WCE at RM539.3 million. Meanwhile, RHB Research Institute values IJM’s entire toll concessions at RM2.13 billion.

This means the value of the Sabah plantation and the toll concessions are already more than half of the market value of the IJM group.

Interest in IJM’s assets arose following Sunway’s emergence in the construction company through Fortuna Gembira Enterpris Sdn Bhd. Fund managers that The Edge spoke to say that Sunway’s purchase of IJM’s shares is an opportunistic buy.

IJM’s share price rose 11.6% to last Friday’s closing price after Sunway’s position in the construction group was reported.

IJM is unique in the sense that it does not have any controlling shareholders. Its largest shareholder as at July 16, 2020, was the Employees Provident Fund (EPF) with 12.3%, followed by Kumpulan Wang Persaraan (Diperbadankan) (KWAP) with 8.07%.

As at April 15, the EPF owned 16.75% of IJM, while KWAP and Urusharta Jamaah Sdn Bhd had 9.28% and 6.16% respectively.

Therefore, if a shareholder with strong financial backing launched a takeover offer, it might face little opposition or competition from other major shareholders, as these are mostly institutions that always have exit levels.

 

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