KLK tables RM3.10 a share offer for IJM Plantations

IJM Corp’s board received a letter dated June 9 from KLK proposing to acquire 494.9m ordinary shares in IJM Plantations


KUALA Lumpur Kepong Bhd (KLK) has tabled a cash offer to acquire a controlling 56.20% stake in IJM Plantations Bhd from IJM Corp Bhd for RM1.53 billion or RM3.10 a share.

KLK has given IJM Corp until tomorrow at 5pm to reply to the terms of the offer. IJM Corp, in a filing to Bursa Malaysia yesterday, stated its board is deliberating the terms and conditions of the takeover offer.

This is the third major merger and acquisition exercise in the past week in Malaysia following Seaport Terminal (Johor) Sdn Bhd’s proposed a selective capital reduction exercise of MMC Corp Bhd for RM2.94 billion or RM2 a share and Hibiscus Petroleum Bhd’s acquisition of Repsol Exploración SA’s production sharing contracts in Malaysia and Vietnam for some RM880 million in cash.

“The board received a letter dated June 9 from KLK proposing to acquire 494.87 million ordinary shares in IJM Plantations, representing 56.2% equity stake held by IJM Corp in IJM Plantations.

“In the offer, KLK wishes to acquire the shares for RM1.53 billion, based on RM3.10 per sale share, to be payable in cash, subject to the terms and conditions of a sale and purchase agreement to be executed,” IJM Corp noted in a bourse filing yesterday.

Perak-based KLK has confirmed it has the financial resources to complete the proposed acquisition.

Save for the 10 sen per share interim dividend declared by IJM Plantations on May 27, 2021, which will be due and payable to IJM Corp on July 30, 2021, any subsequent declaration by IJM Plantations of dividends and/or other distributions, will be reduced from the offer price, KLK stated.

The RM3.10 share offer price is at a premium of 65 sen or 26.5% over IJM Plantations last traded price of RM2.45 on Tuesday.

According to the websites of both companies, the purchase of IJM Plantations could see the KLK’s total plantation landbank increase to 336,000ha from the current 275,000ha.

If the deal materialises, the acquisition would be the second major deal corporate exercise undertaken by the group after KLK’s controlling shareholder, Batu Kawan Bhd, bought Permodalan Nasional Bhd’s entire 56.32% stake in Chemical Co of Malaysia Bhd (CCM) for RM292.97 million in November last year.

CCM has since been taken private by Batu Kawan.

MIDF Amanah Investment Bank Bhd (MIDF Research) said the disposal of IJM’s Plantation unit is deemed well-timed as the upcycle of the crude palm oil (CPO) prices would boost IJM Corp’s financials.

“We are of the view that the group’s potential disposal of IJM Plantations is at an opportune time, capitalising on the CPO upcycle to fetch a higher valuation as well as an opportunity to strengthen its balance sheet and boost its war chest,” the research house said.

A successful sale would allow IJM Corp to be a more competitive bidder in larger construction and infrastructure projects as the private finance initiative model is being increasingly explored by the government moving forward which requires contractors to have a strong balance sheet, MIDF Research said.

“For instance, the group could significantly improve its net gearing to about 0.31 time from 0.44 time, assuming the entire sales proceeds are allocated to pare down debts.

“We believe the disposal of its entire plantation division could provide the group with a more stable earnings outlook in the long run as the persistently higher cost of production versus its plantation peers renders the earnings contribution to be easily susceptible to the fluctuation in CPO prices.

“Note that the plantation division had been in a loss-making position in the financial year 2019 (FY19) and FY20, while revenue contribution stayed rather stable at about 11%-12% of the group’s total revenue,” it said.

The research house is estimating IJM Corp’s earnings for FY22 and FY23 would be trimmed by about 4.8% and 10.9% respectively, partially mitigated by potential savings in finance costs of RM39 million per annum.

“Despite that, we believe it is opportunistic disposal to beef up its balance sheet and furnish the group with more stable earnings prospects.

“Therefore, we are looking at attaching a more premium valuation for the group should this materialise,” it said.

MIDF Research is maintaining its target price of RM2.12 for IJM Corp based on pegging the group’s FY22 earnings per share to an unchanged price-to-earnings ratio of 17.7 times and its ‘Buy’ recommendation for IJM Corp.