KLK offer price for IJM Plantations is fair


THE takeover offer received by IJM Corp Bhd from Kuala Lumpur Kepong Bhd (KLK) to buy out its entire 56.2% stake in IJM Plantations Bhd for RM1.53 billion cash, is viewed as a fair deal by analysts.

MIDF Amanah Investment Bank (MIDF Research) said the offer, which values IJM Plantation at RM3.10 a share is above the firm’s valuation of RM2.62 on the planter that is based on its financial year 2022 (FY22) price-to-earnings ratio valuation of 16 times.

“The offer price translates to a valuation of RM1.53 billion and if KLK extends the offer to all the remaining IJM Plantation shares, the offer price will translate to a valuation of RM2.7 billion.

“We opine this offer price is reasonable given the current crude palm (CPO) oil price which has breached RM4,000 per tonne, which is also at a high,” it said in a note yesterday.

MIDF Research stated the offer price is fair and will more likely get acceptance from IJM Plantations’ minority shareholders and the offer is a great opportunity for KLK to cement its position as one of the big players in the local plantation sector.

MIDF maintained its ‘Buy’ call on IJM Plantation with an unchanged target price (TP) of RM2.62 and maintaining its earnings estimates for the group for FY21, FY22 and FY23 at RM152.6 million, RM144.4 million and RM157.2 million respectively.

It noted IJM Plantations’ improved earnings were largely contributed by the advancement in commodity prices and expects the company’s upstream division to continue to perform well as the CPO price is expected to remain favourable on the back of lower supplies and production.

“We remain concerned about a slower growth rate in the fresh fruit bunches segment for both the Malaysian and Indonesian operations in view of labour shortage and adverse weather conditions,” it said.

Public Investment Bank also views the proposal positively as the offer price represents a 24.5% premium to its valuation of RM2.49 per share.

Its analyst Nurzulaikha Azali said the price tag is reasonable given the current favourable CPO prices and IJM Plantations’ planted areas which are in prime age.

“We estimate IJM Corp could potentially realise a one-off gross gain of RM726.5 million or RM1.47 per share upon completion of this proposed deal,” she said in a note yesterday.

She added the deal will strengthen the group’s balance sheet further while expanding its capacity in building its construction orderbook.

The firm maintained its ‘Neutral’ recommendation on the plantation company.

“We adjust our FY22-FY24 earnings forecast accordingly in absence of IJM Plantation’s contribution from the second quarter of FY22 onwards. We raise our TP to RM2.03 for IJM Corp, incorporating the offer,” she said.

As for KLK, the research firm said the company has a strong balance sheet given its cash position of RM4 billion and low net gearing level of 0.21 times which is sufficient to undertake the entire acquisition.

In a separate note, the firm’s analyst Chong Hoe Leong said the acquisition will lead to an increase in KLK’s total planted area by 29% to 267,907ha.

“The proposed acquisition could potentially contribute at least 10% to our FY22-FY23 earnings forecast. We will make adjustments pending the outcome of the mandatory general offer, and completion of the deal,” he said.

He upgraded KLK to ‘Outperform’ based on its sum of parts-derived TP of RM25.51.

Chong added although the offer price may look expensive, its earnings accretive deal given the current strong CPO price momentum, low interest rate environment and synergies upon consolidation.