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IJM Land
Thumbs Up, To Merge With MRCB
? Within expectation. IJMLD’s 2QFY11 net profit of RM30.1m (-43.9% qoq; -19.4% yoy) was in line with our expectation and consensus. The sequential decrease in turnover (-41.7% qoq) was largely due to the strong take-up achieved in the previous quarter for Lot 28 shops in Penang and sale of bumi units that were released to the public for projects nearing completion, such as Platino and Summer Place in Penang and Ampersand in Kuala Lumpur. In addition, the construction works for the new launches (mostly high-rise projects) are at their initial stages in 2QFY11.
? 2 become 1. Yesterday, both IJMLD and MRCB have entered into a MOU on the proposed merger between the two. Details will be finalised within three weeks from the date of the MOU, and a definitive merger agreement will be entered into subsequently. This is a second “marriage” of IJMLD after the merger with RB Land in 2008. According to the announcement, the proposed merger will be implemented through a scheme of arrangement under Section 176. A new company with be formed (Newco) to facilitate the proposed merger, and IJMLD and MRCB shares will be exchanged for shares in Newco, or a combination of Newco shares and cash. The exchange will be determined based on RM3.65 per IJMLD share and RM2.30 per MRCB share. The exchange will also apply to convertible securities – RCULS, and a scheme will be included for IJMLD warrants (which should reflect the value of mother shares).
? Good pricing. At the offer price of RM3.65, which is just 4.3% above our previous fair value of RM3.50, it implies a CY11 PE of 20.6x and PB of 2.43x (based on current outstanding shares and BV as at 2QFY11), which are fairly attractive in our opinion. Post merger exercise, the Newco will have a market cap of about RM7-8bn and landbank of 9,000 acres. We believe the Newco, as a big cap property stock, is likely to trade at a premium (to RNAV), due to its size, landbank location, and liquidity.
? Key risks. The risks include: 1) competition from peers; 2) regulatory risk; 3) delays in launches and approvals; and 4) country risk.
? Forecast. Maintained.
? Valuation. We had earlier advised investors to take position in big cap property stocks with strategic landbank as they will be the first that capture broad demand growth, liquidity flow and margin expansion, and M&A catalyst will help spur the interest of the sector further. IJMLD has always been our top pick thus far. Ongoing consolidations in the sector are likely to continue going into 2011. We maintain our Outperform rating and revise fair value to RM3.65, pegged at the offer price for IJMLD.
? 2 become 1. Yesterday, both IJMLD and MRCB have entered into a MOU on the proposed merger between the two. Details will be finalised within three weeks from the date of the MOU, and a definitive merger agreement will be entered into subsequently. This is a second “marriage” of IJMLD after the merger with RB Land in 2008. According to the announcement, the proposed merger will be implemented through a scheme of arrangement under Section 176. A new company with be formed (Newco) to facilitate the proposed merger, and IJMLD and MRCB shares will be exchanged for shares in Newco, or a combination of Newco shares and cash. The exchange will be determined based on RM3.65 per IJMLD share and RM2.30 per MRCB share. The exchange will also apply to convertible securities – RCULS, and a scheme will be included for IJMLD warrants (which should reflect the value of mother shares).
? Good pricing. The offer price is just 4.3% higher than our previous target price of RM3.50, and is roughly 15% above our RNAV estimate. At an offer price of RM3.65, this translates to a CY11 PE of 20.6x and PB of 2.43x (based on current outstanding shares and BV as at 2QFY11), which are fairly attractive in our opinion. After we adjust our GDV for Canal City to RM5.5bn (as RM4bn guided by management previously was rather conservative), and incorporate the value of MRCB as well as the enlarged share base of both companies, the RNAV of the merged entity is estimated at RM8.3bn or RM1.00 per share, assuming the issue price of the Newco shares is RM1, and RCULS and warrants are fully converted. Post merger exercise, the Newco will have a market cap of about RM7-8bn and landbank of 9,000 acres, comparable to that of UEM Land-Sunrise. We believe the Newco, as a big cap property stock, is likely to trade at a premium (to RNAV), due to its size and landbank location, as well as liquidity, possibly on par with SP Setia and UEMLD-Sunrise.
? Good prospects. We are upbeat on the latest development as the proposed merger would result in a well-balanced property player in both the residential (via IJMLD) and commercial segment (via MRCB), with good liquidity as share base will be larger. Although the equity structure and management of the Newco have yet to be decided, we are positive on the prospects of the Newco. To note post merger, Newco will also have a direct access to IJMLD’s existing strategic landbank in Klang Valley, such as the 2,000-acre Canal City land (in the southern side), and more importantly, the merged entity will have a chance to participate in the highly sought-after development of the 3,300-acre Rubber Research Institute land in Sg Buloh (in the northern side), as the project is spearheaded by EPF, which currently holds 42% and 8% stake in MRCB and IJMLD, respectively. As for MRCB which is an expert in commercial development, synergies will materialise as IJMLD is commencing its Phase II of The Light project soon, which will be a big commercial hub with a GDV of RM4.3bn.
? Key risks. The risks include: 1) competition from peers; 2) regulatory risk; 3) delays in launches and approvals; and 4) country risk.
? Forecast. Maintained.
? Valuation. We had earlier advised investors to take position in big cap property stocks with strategic landbank as they will be the first that capture broad demand growth, liquidity flow and margin expansion, and M&A catalyst will help spur the interest of the sector further. IJMLD has always been our top pick thus far. Ongoing consolidations in the sector are likely to continue going into 2011. We maintain our Outperform rating and revise fair value to RM3.65, pegged at the offer price for IJMLD.
Thumbs Up, To Merge With MRCB
? Within expectation. IJMLD’s 2QFY11 net profit of RM30.1m (-43.9% qoq; -19.4% yoy) was in line with our expectation and consensus. The sequential decrease in turnover (-41.7% qoq) was largely due to the strong take-up achieved in the previous quarter for Lot 28 shops in Penang and sale of bumi units that were released to the public for projects nearing completion, such as Platino and Summer Place in Penang and Ampersand in Kuala Lumpur. In addition, the construction works for the new launches (mostly high-rise projects) are at their initial stages in 2QFY11.
? 2 become 1. Yesterday, both IJMLD and MRCB have entered into a MOU on the proposed merger between the two. Details will be finalised within three weeks from the date of the MOU, and a definitive merger agreement will be entered into subsequently. This is a second “marriage” of IJMLD after the merger with RB Land in 2008. According to the announcement, the proposed merger will be implemented through a scheme of arrangement under Section 176. A new company with be formed (Newco) to facilitate the proposed merger, and IJMLD and MRCB shares will be exchanged for shares in Newco, or a combination of Newco shares and cash. The exchange will be determined based on RM3.65 per IJMLD share and RM2.30 per MRCB share. The exchange will also apply to convertible securities – RCULS, and a scheme will be included for IJMLD warrants (which should reflect the value of mother shares).
? Good pricing. At the offer price of RM3.65, which is just 4.3% above our previous fair value of RM3.50, it implies a CY11 PE of 20.6x and PB of 2.43x (based on current outstanding shares and BV as at 2QFY11), which are fairly attractive in our opinion. Post merger exercise, the Newco will have a market cap of about RM7-8bn and landbank of 9,000 acres. We believe the Newco, as a big cap property stock, is likely to trade at a premium (to RNAV), due to its size, landbank location, and liquidity.
? Key risks. The risks include: 1) competition from peers; 2) regulatory risk; 3) delays in launches and approvals; and 4) country risk.
? Forecast. Maintained.
? Valuation. We had earlier advised investors to take position in big cap property stocks with strategic landbank as they will be the first that capture broad demand growth, liquidity flow and margin expansion, and M&A catalyst will help spur the interest of the sector further. IJMLD has always been our top pick thus far. Ongoing consolidations in the sector are likely to continue going into 2011. We maintain our Outperform rating and revise fair value to RM3.65, pegged at the offer price for IJMLD.
? 2 become 1. Yesterday, both IJMLD and MRCB have entered into a MOU on the proposed merger between the two. Details will be finalised within three weeks from the date of the MOU, and a definitive merger agreement will be entered into subsequently. This is a second “marriage” of IJMLD after the merger with RB Land in 2008. According to the announcement, the proposed merger will be implemented through a scheme of arrangement under Section 176. A new company with be formed (Newco) to facilitate the proposed merger, and IJMLD and MRCB shares will be exchanged for shares in Newco, or a combination of Newco shares and cash. The exchange will be determined based on RM3.65 per IJMLD share and RM2.30 per MRCB share. The exchange will also apply to convertible securities – RCULS, and a scheme will be included for IJMLD warrants (which should reflect the value of mother shares).
? Good pricing. The offer price is just 4.3% higher than our previous target price of RM3.50, and is roughly 15% above our RNAV estimate. At an offer price of RM3.65, this translates to a CY11 PE of 20.6x and PB of 2.43x (based on current outstanding shares and BV as at 2QFY11), which are fairly attractive in our opinion. After we adjust our GDV for Canal City to RM5.5bn (as RM4bn guided by management previously was rather conservative), and incorporate the value of MRCB as well as the enlarged share base of both companies, the RNAV of the merged entity is estimated at RM8.3bn or RM1.00 per share, assuming the issue price of the Newco shares is RM1, and RCULS and warrants are fully converted. Post merger exercise, the Newco will have a market cap of about RM7-8bn and landbank of 9,000 acres, comparable to that of UEM Land-Sunrise. We believe the Newco, as a big cap property stock, is likely to trade at a premium (to RNAV), due to its size and landbank location, as well as liquidity, possibly on par with SP Setia and UEMLD-Sunrise.
? Good prospects. We are upbeat on the latest development as the proposed merger would result in a well-balanced property player in both the residential (via IJMLD) and commercial segment (via MRCB), with good liquidity as share base will be larger. Although the equity structure and management of the Newco have yet to be decided, we are positive on the prospects of the Newco. To note post merger, Newco will also have a direct access to IJMLD’s existing strategic landbank in Klang Valley, such as the 2,000-acre Canal City land (in the southern side), and more importantly, the merged entity will have a chance to participate in the highly sought-after development of the 3,300-acre Rubber Research Institute land in Sg Buloh (in the northern side), as the project is spearheaded by EPF, which currently holds 42% and 8% stake in MRCB and IJMLD, respectively. As for MRCB which is an expert in commercial development, synergies will materialise as IJMLD is commencing its Phase II of The Light project soon, which will be a big commercial hub with a GDV of RM4.3bn.
? Key risks. The risks include: 1) competition from peers; 2) regulatory risk; 3) delays in launches and approvals; and 4) country risk.
? Forecast. Maintained.
? Valuation. We had earlier advised investors to take position in big cap property stocks with strategic landbank as they will be the first that capture broad demand growth, liquidity flow and margin expansion, and M&A catalyst will help spur the interest of the sector further. IJMLD has always been our top pick thus far. Ongoing consolidations in the sector are likely to continue going into 2011. We maintain our Outperform rating and revise fair value to RM3.65, pegged at the offer price for IJMLD.
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