Sunway offers superior path for IJM

MONDAY, April 6 will be an important day for corporate Malaysia.

Sunway Bhd, led by founder and controlling shareholder Tan Sri Sir Dr Jeffrey Cheah will know the outcome of its voluntary takeover offer (VTO) for IJM Corp Bhd.

It is a proposed deal involving two local companies which, if successful, would result in a Malaysian local company having the scale, integration and strong capabilities to compete with large regional players, including major Chinese contractors.

That is 81-year-old Cheah’s vision for the enlarged Sunway-IJM group which together would have about RM64bil in assets.

“We are building a national champion where all shareholders, including IJM’s current shareholders, will continue to participate in future growth. We already share strong synergies in property, construction and industrial businesses.

“At the same time, Sunway brings additional strengths in areas like healthcare, retail, leisure and hospitality, while IJM contributes valuable infrastructure assets such as expressways and ports.

“The combined entity will create a more complete and more resilient group – one that better reflects the Malaysian economy, and one that is better positioned to contribute to nation building in a meaningful and impactful way,” he tells StarBiz7.

While the offer is an opportunity to unlock IJM’s potential, the exercise, however, is facing an uphill challenge.

IJM’s major institutional investors like the Employees Provident Fund and Permodalan Nasional Bhd have expressed reluctance to take up the offer due to valuation reasons, not to mention lobbying, but the fundamental performance gap between the two construction-based companies suggests that remaining in the status quo is a gamble that IJM shareholders can ill-afford to take.

“The offer reflects what we believe is fair value, while ensuring that the enlarged group remains strong and well-positioned for the future. This is not something we intend to keep revising. If we do not reach the required threshold of 50% plus one share, then we will walk away. There is no coercion or obligation on IJM’s shareholders, and equally, no obligation on us to proceed beyond what we believe is a fair offer,” Cheah says.

Two independent advisers have valued the company at RM5 to RM6 per share but IJM’s share price performance has been well below that, averaging about RM2.40 in the past couple of years.

A comparative analysis of the last decade reveals a stark contrast in management efficacy and shareholder returns. Between 2015 and 2025, Sunway’s share price improved by 339%, whereas IJM’s plummeted by 33%.

According to Cheah, this isn’t merely an incidental line on a price chart; it reflects Sunway’s ability to professionally allocate capital across its diverse ecosystem, moving from “hibernation” to maturity and rapid growth and monetisation as was the case with Sunway Healthcare Holdings Bhd’s successful listing last month.

Sunway has built its reputation on organic growth and transparency, maintaining a strong balance sheet which is necessary when operating in sectors like construction. Competition here is high and margins can be thin and prone to economic cycles and government spending as well as capital intensity and project risks.

Critics have questioned the VTO offer structure – 10% cash and 90% Sunway shares – but Cheah points out that, in reality, the offer actually allows IJM shareholders to benefit from valuation creation in the group.

By accepting Sunway shares, IJM shareholders are not selling out but rather exchanging their stake for a seat in a much stronger, more diversified Malaysian conglomerate.

This allows them to benefit from Sunway’s proven leadership and its “sterling” performance in sectors like healthcare and construction.

“The share swap allows IJM shareholders to move immediately into a stronger performing company without the risks associated with reinvestment decisions and market timing. This is not a compromise. It is an efficient repositioning into a proven value creating platform,” he advises.

Furthermore, although talk of competing bids for IJM have surfaced, no candidate has stepped up. IJM shareholders might also need to consider if there is one, would it have the pedigree and balance sheet of Sunway to make a significant difference.

Hence, the rejection of the offer by certain institutional investors could be characterised as a failure of fiduciary duty.

At IJM’s last done price of RM2.26 a share, the RM3.15 a share offer price tabled by Sunway still offers an opportunity to make a paper gain of about 30% for IJM shareholders should the 50% plus one share condition be met.

If the offer fails, there is a strong possibility IJM shares could come under selling pressure as speculative positions built based on the VTO unwind. If the selling pressure is heavy enough, IJM could retest its lows of RM1.80 a share in 2025 in a market where investor sentiment is down due to the ongoing conflict in the Middle East.

The corporate exercise has become a flashpoint for debate, but when looking past the noise of institutional shareholder hesitation, the financial reality is clear: Sunway’s offer represents a superior path for value creation.