Aseambankers: IJM paying fair price for ICP

Tuesday September 9, 2008
Aseambankers: IJM paying fair price for ICP
By LAW KAI CHOW The Star

PETALING JAYA: In view of the current weak market conditions, IJM Corp Bhd’s proposed takeover of Industrial Concrete Products Bhd (ICP) at RM3.30 per share is fairly priced, Aseambankers said yesterday. In a statement, Aseambankers said based on the consensus 2009 price/earnings ratio of 10.2 times for ICP, the offer was considered reasonable for a mid-cap company such as ICP under the current bearish situation. The offer price is also 4.8% higher than ICP’s average share price of RM3.15 over the past year.

The research house also said the proposed acquisition, which includes a share swap, would provide shareholders exposure to the more diversified IJM’s earnings base and higher share liquidity.How ever, it said it would be better if IJM had offered RM3.30 cash instead of the partial cash-share swap option to ICP shareholders. Aseambankers said IJM would enjoy the full benefits of acquiring ICP over the long term because ICP’s foothold in China offered huge infrastructure works potential in the future.

“We estimate the privatisation would positively impact IJM’s net profit by 9% to 10% annually based on ICP’s net profit forecast of RM109mil for the financial year ending March 31 (FY09) and RM122mil in FY10,” it said, adding that the impact on IJM’s earning per share (EPS) would not be felt in the short term due to the enlarged share base.

ICP shares yesterday rose for the second consecutive trading day to close up 13 sen, or 4.6%, at RM2.96. However, this was still below the RM3.30 per share offered by IJM to acquire the remaining 134.4 million 50 sen shares, or 36.6% equity, in ICP on Friday. At yesterday’s closing price, ICP shares are trading at a 34 sen discount to the offer price.

The offer valued ICP at RM1.21bil, or 16.5% premium, at Friday’s closing price of RM2.83.
The acquisition exercise of 26 sen cash and 0.6 new IJM share for each ICP share will cost IJM RM443.5mil but the latter needs only a cash outlay of RM34.9mil. Meanwhile, AmResearch believed the privatisation would enable IJM to maximise the earnings potential of ICP, which has a strong order book on the domestic front. It estimated that with this acquisition, IJM’s FY10 EPS would increase by 2%. However, AmResearch was concerned with the construction margin and uncertainty over the growth rate of IJM’s order book.
IJM plans to fund the acquisition with internal funds or borrowings, and upon completion of the exercise, ICP would be de-listed from Bursa Malaysia. The exercise is expected to be completed by the year-end.

ICP is one of the largest pre-cast concrete producers in Malaysia. Its net profit jumped 40.8% year-on-year to RM32.3mil in the first quarter ended June 30. For FY08, it recorded net profit of RM86.8mil on revenue of RM787.9mil compared with RM59.2mil and RM612.2mil respectively in FY07.