Analysts in favour of IJM investors accepting Sunway’s offer, even as adviser says reject

[KUALA LUMPUR] Most analysts are in favour of IJM Corporation shareholders accepting Sunway’s takeover offer, despite an independent adviser’s report that did not think it was a good deal.

M&A Securities, the independent adviser, released its findings on the merger deal last Friday (Mar 13) and advised IJM’s board and shareholders to reject the RM11 billion (S$3.5 billion) offer from rival developer Sunway, as it is “not fair and not reasonable”.

Based on a sum-of-parts (SOP) approach, the adviser estimated IJM’s valuation to be between RM5.48 and RM.6.48 a share – significantly higher than the offer price of RM3.15 per share.

A secondary assessment by Rothschild & Co also placed IJM’s fair value at between RM4.80 and RM5.63 a share.

Following the analysis, IJM’s board unanimously recommended that shareholders reject the offer.

Despite the findings of higher valuation, several brokerages have suggested that shareholders accept Sunway’s proposal, citing near-term earnings risks and execution uncertainties surrounding IJM’s monetisation plans.

Sunway will hold an extraordinary general meeting on Mar 26 to vote on the proposed corporate exercise. IJM shareholders will then have until Apr 6 to decide whether to accept the offer.

The property and construction giant announced its takeover offer for IJM in January. If it succeeds, the merger would create a conglomerate with a market value of RM50 billion, knitting together a land bank of 2,300 hectares, RM118.1 billion in gross development value and a potential RM13 billion order book.

IJM shares were trading higher on Monday morning, rising about 2 per cent to RM2.37 by midday with around two million shares changing hands.

Sunway shares were up less than 1 per cent at RM5.16, with about 1.7 million shares traded.

Brokerages cite execution risks

CGS International analyst Chong Tjen-San maintained “add” on IJM, but lowered his SOP-based target price on the stock to reflect weaker earnings projections for the financial years 2026 to 2028.

While the group’s uncompleted investment properties hold long-term intrinsic value, he noted that the valuation excludes potential discounts related to property realisable net asset value (RNAV), execution risks and delays in unlocking value.

Therefore, the firm recommends that investors accept Sunway’s offer.

However, Chong remains cautious about the likelihood of the deal materialising, pointing out that IJM’s implied takeover price stands at about RM2.90 a share, below the formal offer of RM3.15 per share.

Similarly, Hong Leong Investment Bank said that shareholders should accept the offer. Analyst Edwin Woo noted that the independent adviser’s valuation assumptions could be debated, and the relatively high offer price may discourage competing bids.

Although IJM plans to unlock value over the next two years – including through a potential listing of its construction arm, toll-road monetisation and an exit from its India operations – he highlighted that near-term earnings are expected to remain subdued as assets undergo a gestation phase.

He also cautioned that future contract wins, including several data centre tenders, are projected to slow as an ongoing Malaysian Anti-Corruption Commission (MACC) investigation creates uncertainty.

Just days after Sunway announced its takeover bid, MACC launched a high-profile probe into IJM involving financial transactions and the ownership of RM2.5 billion in overseas assets.

This led to the freezing of 70 bank accounts and the brief detention of a top executive to assist in investigations concerning alleged corporate governance irregularities and money laundering.

Woo said: “We advise shareholders to accept the offer given that it is within reasonable margin (of) our previous target price of RM3.40. Shareholders can also roll over their investments into the (merged entity), riding on further upside as synergies gradually materialise.”

Fair value estimate “overly stretched”

Meanwhile, UOB Kay Hian analysts Jack Lai and Jack Goh said the fair value presented in M&A Securities’ findings is “overly stretched” due to several aggressive valuation assumptions.

These include a 25.5 times price-to-earnings multiple for IJM’s construction segment, an undiscounted RM10 billion RNAV for the property division, and optimistic cash-flow projections for the infrastructure and property businesses.

The report nevertheless provides a clearer outline of IJM’s monetisation strategy, including an ambitious two-year timeline to unlock value from its assets, the analysts said.

Beyond infrastructure divestments, IJM’s management is also considering listing the construction segment as a standalone pure-play entity.

However, Lai and Goh warned that significant execution risks remain, particularly in achieving premium valuations within a compressed timeframe.

MBSB Research noted that the RM3.15-a-share offer sits at a modest 4.3 per cent discount to its fair value estimate of RM3.29, but still considers the price reasonable.

At a forward price-to-earnings ratio of about 21.1 times, the proposal is broadly in line with IJM’s five-year historical average of 21.4 times, and close to its net tangible assets value of RM3.17 per share.

Undervalued future potential

Not all analysts share that view. Kenanga Investment Bank maintained that shareholders reject the offer, arguing that Sunway’s proposal significantly undervalues IJM’s long-term growth trajectory.

Teh Kian Yeong, an analyst at the bank, said the bid does not fully account for several “young assets” still in development – including the West Coast Expressway and property projects in Malaysia and the United Kingdom, as well as Indian toll roads that are still in the early stages of operations.

While the independent adviser values IJM at between RM20.5 billion and RM22.7 billion, Kenanga believes the company’s recent share-price weakness offers an attractive entry point for investors.

Still, Teh acknowledged that a combined Sunway-IJM entity could generate operational efficiencies and synergies across construction, property and manufacturing segments over time.