WITH news of various parties’ interest in IJM Corp Bhd swirling in the market, investors are paying attention to the assets that the company can monetise to add value to its stock.

In a May 10 report, Credit Suisse says talk of a merger with, or takeover of, IJM Corp adds pressure on management to expedite plans to monetise its assets, and highlights that higher crude palm oil (CPO) prices have improved the prospects of its plantation business in terms of disposing of it.

IJM Corp has a 56.2% stake in IJM Plantations Bhd, which has 60,981ha of palm oil estates in Sabah, East Kalimantan and Sumatra.

“The sharp rise in profitability of the group’s plantation operations on the back of a surge in the CPO price to RM4,500 per tonne has significantly improved the prospects of disposing this business at a price that would be deemed acceptable to management,” says the report.

Credit Suisse values IJM Plantations at RM3.96 per share based on a similar valuation matrix as its peers, namely an enterprise value (EV) per mature hectare of RM85,000 and an EV/Ebitda of 12 times.

At RM3.96, IJM Plantations would be worth RM3.5 billion. The stock closed at RM2.11 per share last Tuesday, valuing the company at RM1.86 billion.

“In our view, it would not be inconceivable for management to successfully dispose of its IJM Plantations stake at a 20% to 30% discount to its peers’ valuations. Hypothetically, should the group successfully dispose of its IJM Plantations stake at a 20% discount to its peers’ valuations, or RM3.17 per share, the transaction could generate up to RM1.57 billion or 23% of IJM Corp’s market capitalisation,” writes Credit Suisse research analyst Danny Goh.

The other shareholders of IJM Plantations are the Employees Provident Fund (13.44%), Kumpulan Wang Persaraan (Diperbadankan) (4.72%), Desa Plus Sdn Bhd (4.2%), Sakilan Desa Sdn Bhd (2.09%) and Southern Realty Resource Sdn Bhd (1.44%).

Sakilan Desa is a subsidiary of IOI Corp Bhd while Southern Realty Resource is linked to the owners of Southern Acids (M) Bhd. IOI Corp is an integrated palm oil producer while Southern Acids has interests in oleochemicals, the processing of fresh fruit bunches into CPO and palm kernel as well as the cultivation of oil palms, and healthcare.

IOI Corp is one of Malaysia’s largest palm oil producers while Southern Acids, together with its owners, is a major mill owner in the country. It remains to be seen whether these palm oil players will raise their interest in IJM Plantations.

Previous attempts to sell did not materialise

In 2018, there were reports of IOI Corp and Hap Seng Plantations Holdings Bhd attempting to acquire IJM Plantations. The offer price was said to be in the range of RM2.1 billion to RM3.1 billion.

Both suitors — IOI Corp, which had added RM3.7 billion to its war chest following the sale of a 70% stake in its speciality fats unit Loders Croklaan, was on the lookout for acquisitions while Hap Seng Plantations was debt-free with a strong balance sheet — had a strong presence in Sabah and were in good standing for the deal.

PublicInvest Research opined in a 2018 report that the deals did not materialise because the shareholders believed that the plantation business had not been valued “fairly”. The weak CPO prices at the time also meant that a potential acquisition would have warranted a significant discount in its offer price. It also said the potential acquisition was unlikely to be earnings accretive for the suitors in the near term.

Other monetiseable assets

Apart from its plantation arm, IJM Corp has other assets it can monetise.

The Credit Suisse report notes that the group has idle land and underperforming assets that it could dispose of, which “could rerate the stock and narrow the discount to the group’s intrinsic value”. It points to the group’s land bank of 4,815 acres and the fact that management is looking to dispose of the idle land.

“Management is now in advanced talks to dispose of surplus land in the northern and central regions worth RM400 million to RM500 million. Given that the group acquired the land a long time ago at very low prices, we would not be surprised if the selling price is well above the carrying value of the land,” says Credit Suisse.

With a fragmented shareholding structure, IJM Corp has always been a vulnerable target. There is no dominant shareholder, with almost 45% of its shares held by institutional investors.

IJM Corp has interests in construction, property, plantation and infrastructure, with its businesses spread across Malaysia, Indonesia and India. It owns and operates the New Pantai Expressway (NPE), Sungai Besi Expressway (Besraya) and Kajang-Seremban Highway (Lekas), as well as Kuantan Port. It also has a 26% stake in WCE Holdings Bhd, the operator of the West Coast Expressway, which is currently being constructed.

On April 26, The Edge wrote that Iskandar Waterfront Holdings Sdn Bhd (IWH) — a 63:37 public-private partnership involving private equity firm Credence Resources Sdn Bhd and Kumpulan Prasarana Rakyat Johor Sdn Bhd — had reached out to IJM Corp with a preliminary proposal to merge. IWH is 63.13% owned by tycoon Tan Sri Lim Kang Hoo via his 97.98% stake in Credence Resources.

Meanwhile, Sunway Bhd via its subsidiary Fortuna Gembira Enterpris Sdn Bhd, has accumulated a 4.95% stake in IJM Corp and was its fifth largest shareholder as at March 31.

However, Malaysian Resources Corp Bhd, one of the parties said to be interested in IJM Corp, has denied that it has any interest in IJM Corp.

IJM Corp’s share price had risen 4.62% year to date to close at RM1.81 last Tuesday, giving the company a market capitalisation of RM6.54 billion.