IJM & Roadbuilder

Chairman Q said... I am not convinced with the rationale of IJM's purchase of Roadbuilder. There is little to gain from the merger as Roadbuilder is facing with declining order book. IJM is better off focusing on building its own order book or buying concessionary assets from roadbuilder. I suspect Tan Sri Chuah is a nominee and his exit is pre-planned long time ago.

My Take - Let's check and see what overpaid analysts are saying:

IJM
CIMB - Neutral, target price RM5.45
Deutsche Bank - Upgrade to Buy, orderbook all time high, target price RM7.65

Roadbuilder
Kenanga - Buy, target price RM3.50 on the 2 for 1 swap
CIMB - Outperform, target price RM3.29

The funny thing is, CIMB basically has a sell on IJM, based on the swap, even at RM3.00 into RM6.00, Roadbuilder would be a good buy for IJM according to CIMB. Why is Roadbuilder a buy and IJM a sell?? Hmmm ... As usual, you have varying reports on what is fair valuation. It has a lot to do with how many institutional buyers and holders you have.

My assessment is IJM is already a very good regional player, a company with a growing reputation and in fact a significant US firm will be coming into IJM soon based on their recent projects and excellent regional strategy. IJM is also buying Roadbuilder, a good company, and extending IJM's book of expertise and strengths. What's not to like about the deal... The deal solidifies IJM's book order management. While it still operates a strong hand domestically, it is increasingly being viewed as a solid regional play especially into India and Middle East. Many Singapore construction and property firms have done well into China, IJM is the clear success story into India and Middle East. More things to come for IJM, so I tend to side with Deutsche report here. Many analysts just look at numbers to base their valuations, even a DCF would not be able to take into account a lot of the intrinsics.

IJM stands out in the eyes of institutional funds due to their professional management ability, regional push strategy, and in particular the execution ability. Their cost management and project management scheduling are solid, now they are relying less and less on Malaysia, and hence will not have to rely so much on political networking and handouts. These few factors will encourage more institutional buyers as a good regional play.