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Thursday, November 25, 2010

Analysts positive over IJM Land-MRCB merger

Combined entity will have stronger balance sheet, appeal to foreign investors

PETALING JAYA: Analysts are generally positive on the merger proposal between IJM Land Bhd and Malaysian Resources Corp Bhd (MRCB) although details of the proposal have yet to be revealed.

On Tuesday, IJM Land and MRCB signed a memorandum of understanding pursuant to the proposal that only revealed the merger would involve a share-swap whereby the shares of IJM Land and MRCB would be exchanged for shares in a new incorporated company.

The exchange price is RM3.65 per IJM Land share and RM2.30 per MRCB share. Kenanga Research said the offer price for MRCB and IJM Land was pegged at 2.6 times and 2.48 times price-to-book value respectively.

It said this was fair considering that the combined entity would have a market capitalisation of RM7bil and would become the second largest property company with improved liquidity and market positioning that would appeal to foreign institutional investors.

Kenanga said the new company would essentially be a property company and would look to divest its other businesses like infrastructure, concession and construction.

The research house said it would also be a formidable entity with a stronger balance sheet and would stand a better chance in securing a meaningful role in the development of the Employees Provident Fund's (EPF) Rubber Research Institute land.

We advise investors to subscribe to the offer and convert their shares to the new company shares. Only then will they be able to participate in the new growth under the might of the combined entity, Kenanga said in a report yesterday.

OSK Research viewed the proposed merger as synergistic and complementary to both property businesses given the different strengths of MRCB and IJM Land.

At present, MRCB's property development activities are mostly in the commercial sector and concentrated in the Klang Valley with its flagship project, KL Sentral, commanding a gross development value of over RM12bil.

IJM Land's strength is in its township and residential developments in the Klang Valley, Penang, Johor, Negri Sembilan, Sabah and Sarawak.

OSK Research said the RM2.30 offer price for MRCB was somewhat fair but not quite attractive due to the small premium and upside from its last closing price. It said the offer price only represented a 7% and 12.2% upside from the last closing price and OSK Research's previous fair value respectively.

For IJM Land, Hwang-DBS Vickers Research said at RM3.65 per share, the deal appeared attractive valuing IJM Land at 2.4 times net tangible asset.

It said this was an attractive price to migrate to a new company that would have an estimated market cap of RM7.2bil, 9,023 acres of land bank, RM3bil asset size and RM2bil revenue.

While details of IJM Corp Bhd's stake in the new company are sketchy, Hwang-DBS understood it would be substantial to enable it to consolidate earnings.

It said IJM Corp would convert the RM400mil nominal value of IJM Land redeemable convertible unsecured loan stocks (RCULS) into 229.9 million new shares of IJM Land at RM1.74 per share, raising its stake to 69% from 63% (before conversion of warrants).

Assuming IJM Corp ends up with a 41% stake in the new company based on the current offer prices and conversion of RCULS and warrants, this will work out to RM3.6bil versus its current 63% stake in IJM Land of RM2.1bil, it said.

IJM Land, IJM Corp and MRCB have a common shareholder, the EPF, which holds a 7.8%, 15.6% and 42% stake in the three companies respectively.

By The Star

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