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Goldis’ offer price for IGB stake is ‘unfair and unreasonable’
by Cals Tue 22 Jul 2014, 12:57
Goldis’ offer price for IGB stake is ‘unfair and unreasonable’
Business & Markets 2014
Written by PublicInvest Research
Tuesday, 22 July 2014 09:39
IGB Corp Bhd
(July 21, RM2.88)
Downgrade to neutral with target price of RM2.88: IGB announced on July 18 that it had received a conditional takeover offer from Goldis Bhd for RM2.88 per share. As at June 17, Goldis owned about 32% (excluding treasury shares), and hence will pay about RM2.64 billion to buy out the remaining stake in IGB. The deal, which prices the equity value of IGB at RM3.84 billion, substantially undervalues IGB’s assets, which we estimate is worth at least RM8 billion or RM5.85 per share.
The offer price of RM2.88 values IGB’s equity value at RM3.84 billion, which is only about 48% of our estimated RM8 billion revised net asset value (RNAV), which we believe is conservative as we have yet to impute value coming from future assets such as the MidValley SouthKey (1.8 million sq ft of net lettable area [NLA]) and Southpoint (900,000 sq ft NLA) developments, as well as IGB International School, a few hotels and other development projects that have potential gross development value (GDV) of RM10 billion.
The offer price — which was derived from, among other things, the reported book value of RM4.42 billion or RM3.25 — is unfair and unreasonable in our view as most assets in IGB are still valued at book value. Its 51.4% stake in IGB Real Estate Investment Trust (REIT) is already worth RM2.2 billion and it has a net cash position of about RM700 million at holding level.
The offer premium of less than 10% of one-year volume weighted average market price does not seem like an attractive offer in our view. Interestingly, we note that Goldis has only about RM100 million cash, and therefore requires at least RM2.5 billion (vis-à-vis its market cap of RM1.45 billion) funding for the bid. The persons acting in concert (PACs, who own about 15.3%) who include current management personnel in IGB have accepted the offer.
We believe the offer undervalues the assets of IGB. True, IGB’s stock performance has been disappointing. We note that even with the listing of IGB REIT, the value unlocked has not really translated into a higher stock price. IGB closed at RM2.83 on April 16, 2012 (the announcement date of IGB REIT) and on July 17, 2014, it closed at RM2.84.
However, the embedded value of IGB cannot be ignored. The earnings, mainly from rental income, will only increase with the incoming assets that could potentially double in the next three to five years.
Our earlier target price of RM4.10, which was at a 30% discount to our RNAV estimate of RM5.85, is not valid if the takeover is to take place. That said, we do believe the offeror’s bid of RM2.88 is not attractive. — PublicInvest Research, July 21
This article first appeared in The Edge Financial Daily, on July 22, 2014.
Business & Markets 2014
Written by PublicInvest Research
Tuesday, 22 July 2014 09:39
IGB Corp Bhd
(July 21, RM2.88)
Downgrade to neutral with target price of RM2.88: IGB announced on July 18 that it had received a conditional takeover offer from Goldis Bhd for RM2.88 per share. As at June 17, Goldis owned about 32% (excluding treasury shares), and hence will pay about RM2.64 billion to buy out the remaining stake in IGB. The deal, which prices the equity value of IGB at RM3.84 billion, substantially undervalues IGB’s assets, which we estimate is worth at least RM8 billion or RM5.85 per share.
The offer price of RM2.88 values IGB’s equity value at RM3.84 billion, which is only about 48% of our estimated RM8 billion revised net asset value (RNAV), which we believe is conservative as we have yet to impute value coming from future assets such as the MidValley SouthKey (1.8 million sq ft of net lettable area [NLA]) and Southpoint (900,000 sq ft NLA) developments, as well as IGB International School, a few hotels and other development projects that have potential gross development value (GDV) of RM10 billion.
The offer price — which was derived from, among other things, the reported book value of RM4.42 billion or RM3.25 — is unfair and unreasonable in our view as most assets in IGB are still valued at book value. Its 51.4% stake in IGB Real Estate Investment Trust (REIT) is already worth RM2.2 billion and it has a net cash position of about RM700 million at holding level.
The offer premium of less than 10% of one-year volume weighted average market price does not seem like an attractive offer in our view. Interestingly, we note that Goldis has only about RM100 million cash, and therefore requires at least RM2.5 billion (vis-à-vis its market cap of RM1.45 billion) funding for the bid. The persons acting in concert (PACs, who own about 15.3%) who include current management personnel in IGB have accepted the offer.
We believe the offer undervalues the assets of IGB. True, IGB’s stock performance has been disappointing. We note that even with the listing of IGB REIT, the value unlocked has not really translated into a higher stock price. IGB closed at RM2.83 on April 16, 2012 (the announcement date of IGB REIT) and on July 17, 2014, it closed at RM2.84.
However, the embedded value of IGB cannot be ignored. The earnings, mainly from rental income, will only increase with the incoming assets that could potentially double in the next three to five years.
Our earlier target price of RM4.10, which was at a 30% discount to our RNAV estimate of RM5.85, is not valid if the takeover is to take place. That said, we do believe the offeror’s bid of RM2.88 is not attractive. — PublicInvest Research, July 21
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This article first appeared in The Edge Financial Daily, on July 22, 2014.
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