KUALA LUMPUR (April 7): Sunway Bhd (KL:SUNWAY) may continue pursuing acquisitions as its standalone fundamentals remain intact, analysts said following the failed takeover of a rival.

The attempt to take over IJM Corporation Bhd (KL:IJM) indicates Sunway’s appetite to acquire any company that holds strategic assets worth up to RM12 billion, which the company is able to fund with a cash pile of over RM1 billion, RHB Research said.

“Apart from companies with valuable assets, acquisition opportunities may also be a land bank for development or investment properties,” the research house said.

Investors, meanwhile, did not react to the deal’s collapse. The outcome was largely expected following news reports of government-linked investment companies rejecting the offer from Sunway for their IJM shares.

Following a delayed start on Tuesday, Sunway opened unchanged at RM4.99, while IJM was three sen lower at RM2.33 and both remained in tight range with light trading volume.

At the close of the offer on Monday, Sunway merely secured acceptance from 33% of the shareholders’ approval, short of the 50% plus one-share required for takeover to proceed.

The offer was launched on Jan 12 to acquire IJM at RM3.15 per share, comprising 10% cash and 90% new Sunway shares. The deal values IJM at about RM11 billion.

In a note to clients, TA Securities said the conclusion of the takeover process on Monday was positive, as it removes a key overhang on the stock and allows investors to refocus on Sunway’s core earnings drivers and underlying value which could support a rerating over time.

The research house also upgraded Sunway to 'buy' from 'hold', citing a better risk-reward profile, resilient property sales and strong contributions from Sunway Construction Group Bhd (KL:SUNCON) — a direct proxy to Malaysia’s data centre investments — as well as expansion of its healthcare arm Sunway Healthcare Holdings Bhd (KL:SUNMED).

Of the 13 analysts covering the stock, nine have a 'hold' call, while the remaining four rate it a 'buy'. The consensus 12-month target price stands at RM5.68, implying a potential upside of about 13% from the current price.  

For IJM, the door is now open for several initiatives, including a potential listing of its construction arm, an exit from its India businesses — covering toll highways and property projects — as well as injecting its local highway assets into a trust or listing them separately over the next two years.

“We view that the takeover attempt has created a strong sense of urgency for IJM’s management to expedite its value unlocking initiatives,” Hong Leong Investment Bank (HLIB) said.

A spin-off listing of construction arm requires IJM to demonstrate solid execution, increasing data centre exposure and robust order replenishment outlook, the house said, noting that IJM also has to focus on monetising idle land and pursuing quicker turnaround projects with sluggish property sales.

“Exit from the Indian market would also be well-received by investors,” HLIB added.

Read also:
Sunway fails in bid to take over IJM