KUALA LUMPUR (June 10): Shares of IJM Plantations Bhd (IJMP) jumped to 58 sen or 23.58% to hit a three-and-a-half-year high of RM 3.04 at the start of trading today on the back of Kuala Lumpur Kepong Bhd (KLK) is offering to acquire a 56.2% stake in the group for RM 1.53 billion or RM 3.10 per share.
By 11:20 am, IJMP had reduced some gains to RM3.02, still up 56 sen or 22.76%. At RM 3.02, the meter was valued at RM 2.17 billion.
The counter, which was the biggest winner this morning, saw 13.55 million shares traded.
Meanwhile, KLK had lost eight sen or 0.37% to RM21.68 at 11:23 am after increasing 36 sen or 1.65% to RM22.12 at the start of the session. The meter was valued at RM 23.52 billion based on the latest share price of RM 21.68.
Hong Leong Investment Bank (IB) research analyst Chye Wen Fei said in a note today that the price of KLK’s offer is fair to IJMP shareholders given the lukewarm price sentiment on plantation stocks on the backs of environmental, social and corporate governance (ESG) concerns, adding that crude palm oil (CPO) prices have peaked and the offer price represents a 18.8% premium over its target price (TP) for IJMP.
It maintained its IJMP “buy” rating, with a higher TP of RM 3.10 (up from RM 2.61 earlier), in line with the price of KLK’s takeover offer.
MIDF Research, meanwhile, also said that the offer of RM 3.10 per share values IJMP at 19 times the price-earnings ratio (PER), above its valuation of RM 2.62 based on the year ended March 31, 2022 (FY22) 16 times.
He considered the offer price to be reasonable given that the current CPO price has exceeded RM4,000 per ton, also a record high.
“We believe the deal is fair for KLK to secure a controlling stake in IJMP (at an 18% premium over our TP of RM2.62) and is more likely to appear attractive enough for minorities to ‘IJMP will accept it if the deal evolves into a binding offer for the rest of IJMP’s shareholders,’ he said.
It also maintained its “buy” call on IJMP, with an unchanged TP of RM2.62.
On the other hand, PublicInvest Research analyst Nurzulaikha Azali is also in favor of the proposal as the deal represents 1.9 times the price per pound (P / B) and 44,500 RM per hectare planted (ha), a slight industry P / B premium and the previous acquisition of upstream assets from KLK.
“The price of RM 3.10 per share also represents a premium of 24.5% over our valuation of IJMP at RM 2.49 per share. We believe the price is reasonable given the currently favorable prices of the CPO and the areas planted by the IJMP which are in their prime, ”she said.
Meanwhile, CGS-CIMB analyst Ng Lee Fang said she believes the deal could potentially increase KLK’s profits from 2% to 9% for the fiscal year ending September 30, 2022 ( FY22).
“We estimate the potential acquisition of IJMP to increase KLK’s oil palm plantations by 28.7% to 274,688 ha. This will also allow KLK to slightly lower its average age profile of the estate; the average age of its palm oil plantations of 12.2 years is higher than the 11.8 years of the IJMP, ”she said.
She said that KLK should have no problem financing the acquisition in cash, as it had a cash balance of RM 4 billion at the end of March 2021 and a net debt level of 24%.
“However, we estimate that the acquisition of IJMP could increase KLK’s debt ratio to 37% / 46% (assuming a 56.2% / 100% stake in IJMP),” she said. added.
She maintained her “add” call on KLK, with a TP of RM 25.25.
On the other hand, PublicInvest Research analyst Chong Hoe Leong said the proposed acquisition could potentially contribute at least 10% of KLK’s earnings for FY22 and FY23.
While the offer may seem expensive, he believes it is a profitable transaction given the current strong CPO price momentum, low interest rate environment, and synergies in the market. of consolidation.
He believed that there would be economies of scale given the proximity of the KLK and IJMP plantations to Sumatra and East Kalimantan.
“Given the recent retracement of the share price, the potential upside is attractive and warrants an upgrade to ‘outperform’ based on our sum of TP derived from the RM25.51 coins,” he said. he declares.
MIDF Research said that following the acquisition, KLK’s total planted area will increase by 27.2% to 284,930 ha, from 223,964 ha, far more than its peers, namely IOI Corp Bhd (178,068 ha) and Genting Plantations Bhd (159,521 ha).
“The larger area planted can result in a potential increase in annual profits of 10% to 12%, assuming KLK acquires up to 100% of IJMP, while in a scenario where the acquisition is limited to 56.2% Initial%, KLK’s annual profit increase is estimated at 6% -9%, ”he said.
On top of that, he said, synergies could be obtained from various factors, such as cost reduction (through economies of scale resulting from purchasing more fertilizer). ), the combination of talent and technology and the improvement of income.
The research house, however, left its profit estimates for FY21, FY22 and FY23 unchanged at RM 1.11 billion, RM 1.09 billion and RM 1.1 billion respectively, pending the outcome of the agreement.
It also maintained its “buy” call on KLK, with an unchanged TP of RM27.01.
KLK offers to buy IJM Plantations shares from IJM Corp for RM 1.53 billion