Tuesday, July 23, 2013

IOI Corporation : A Step Closer To Unlocking Value (UOBKH)

IOI Corporation
Share Price RM5.45
Target Price RM6.35
A Step Closer To Unlocking Value

We see rising confidence on the listing of IOI Properties Group post-issuance of the IPO draft prospectus. The key is the reasonable valuation shown in the valuer’s report addressing concern over asset pricing and potential upside post-IPO. The bulk of the revaluation comes from its Johor landbank and projects in Singapore, which remain valued at below market prices to stay conservative. Maintain BUY. Target price: RM6.35.


What’s New
• IOI Corporation’s (IOIC) share price appreciated slowly as the market starts to realise the value creation from the listing of IOI Properties Group (IOIP) and addresses the concern on asset pricing when the valuation report was made available in IOIP’s IPO Draft Prospectus.

• Based on the prospectus, a total of RM18.2b assets are sold to IOIP, which carried about RM11.9b in IOIC’s book. The main revaluation arises from the plantation land in Johor and properties in Singapore. Even after revaluation, the landbank in Johor is still very much below market prices.

• We foresee strong interest to participate in IOIP’s listing given its large market cap, strong earnings growth and large 44% discount to market value of RM5.53/IOIP share. The only way to participate in this large property listing is through IOIC as no new shares will be offered in this IPO.

Stock Impact
• 27.6% yield. Reiterate our positive view on the value creation to IOI’s shareholders from the listing of IOIP. IOI’s shareholders will get two free IOIP shares (in the form of dividend in-specie) and one IOIP share at 30% discount to IPO price for every six IOI shares. The dividend inspecie translates into 27.6% yield based on a total of RM9.6b value in IOIP shares to be declared as dividend in-specie.

• Upside to IOIP post listing. IOIP’s listing price (expected RM2.50- 2.55/IOIP share) is likely to be at a deep discount to RNAV/share, ie RM4.44/IOIP share. With strong execution capabilities, good track record and strong entrepreneurship, IOIP is likely to command valuations on a par with leading developers such as SP Setia, ie could see IOIP share trade at RNAV or just a small discount to RNAV/share.

• Listing PE likely to be at 11-12x forward PE. Management’s target of at least RM1b operating profit per year over the next three years is achievable on the back of the launches pipeline. A total GDV of RM14b- 15b launches (refer to table on the right) were launched and about to launch support at least RM2.4b-2.5b sales. Assuming an operating profit margin of 50%, IOIP would be able to deliver at least RM1.0b-1.2b in PBT over the next 2-3 years. Based on the potential listing market cap of RM8.25b, IOIP’s forward PE should be around 11x, which is cheaper than the valuations of the big-cap listed property plays in Malaysia.

• Xiamen project to launch in Nov 13. Our HK-based property analyst commented that demand for Xiamen property is likely to be resilient despite the tightening measures. The mitigating factor is that Xiamen is located in the West Strait Economic Zone, which is the proposed economic development zone by the Fujian government and the central government. This proposed economic zone targets to integrate the economy and transportation in the coastal cities (including Xiamen and a few other cities in the Fujian province) and to strengthen economic ties and cooperation with Taiwan. The launch of 101 Park Bo Bay is expected to be in Nov 13. This development sits on a 7.66 acre piece of land. It comprises 632 units of high-end residential duplex town villas and condominiums, as well as 170 commercial units, occupying a saleable area of approximately 1.1m sf for a total GDV of RM563m.

Earnings Revision/Risk
• No change to our earnings forecasts. We expect EPS of 27.3 sen, 33.6 sen and 39.9 sen for FY13, FY14 and FY15 respectively.

Valuation/Recommendation
• Maintain BUY and target price of RM6.35, based on sum-of-the-parts (SOTP) valuation at 17x FY15 PE for the plantation business and a 5% discount to IOIP’s RNAV. We are applying a smaller discount to RNAV for IOIP as this will be a large cap listing in addition to great value enhancement from its strategic landbank near the new rail stations (LRT extension, MRT Line 2 and ERL).

Share Price Catalyst
• Strong CPO price and plantation yield recovery.
• Value enhancement M&A to expand plantation landbank




Source/Extract/Excerpts/来源/转贴/摘录: UOB Kay Hian research
Publish date: 23/07/13

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