By Chan Quan Min
While analysts are full of praise for IOI Corporation’s demerged property arm IOI Properties Group, they are mildly pessimistic on the future performance of the parent company.
On the occasion of IOI Properties’ inaugural listing today, research houses Kenanga Research and Hong Leong Investment Bank (HLIB) Research predicted IOI Properties could soon trade at between RM3.68 to RM4.01 per share.
Meanwhile, parent IOI Corporation, after seeing a 11% slump since going ex, is expected to see its share price continue to languish barring a sustained recovery in crude palm oil (CPO) prices.
This morning alone, IOI Properties surged 42% from the reference share price of RM2.51 to peak at RM3.56. As of the midday trading break, however, the stock was trading slightly lower at RM3.09, up 58 sen.
At RM3.09 apiece, IOI Properties is worth just shy of RM10 billion in total market capitalisation. The property giant is neck and neck with UEM Sunrise, at current valuations, as the largest Bursa Malaysia listed property group.
When compared based on landbank size, IOI Properties is the clear winner. According to Kenanga Research, IOI Properties is the largest listed developer in Malaysia and the owner of a remaining landbank of 14,337 acres.
The bulk of IOI Properties’ landbank, some 61% of the 10,000 acres prime for development is in the state of Johor, with much of the remainder in Melaka, the Klang Valley and Penang.
Given the size of the company, IOI Properties could have a total gross development value (GDV) of close to RM100 billion, said Kenanga Research.
The research house arrived at the figure extrapolating IOI Properties’ management guidance of RM18 billion in GDV on just 20% of the group’s total landbank over the next three years, of which 56% is in Malaysia and the remainder in overseas markets.
Significantly, IOI Properties’ GDV is comparable to that of SP Setia’s and some 28% larger than UEM Sunrise’s GDV.
IOI Properties’ GDV-to-market capitalisation ratio represents ‘deep value’ to its peers, Kenanga Research concluded in their analysis. Investors were urged to accumulate the stock, with an ‘outperform’ call on the counter.
IOI Corporation sinks
With the demerger, the IOI Group has now been split into a largely plantations play in parent company IOI Corporation and a pure property play in IOI Properties.
IOI Corporation and IOI Properties are headed by Lee Yeow Chor and Lee Yeow Seng respectively, both sons of IOI group founder Lee Shin Cheng.
Analysts reckon the two listed entities could move in different directions in line with the performance of their respective industry sectors.
In a report today, UOB Kay Hian revised downwards their earnings forecast for IOI Corporation by 17% for FY14, 32% for FY15 and 37% for FY16 to reflect the demerger.
UOB Kay Hian noted the parent company’s share price has slumped 11.3% since the stock went ex on Dec 19, 2013.
But an end to the slide in share value could be on the horizon. The research house rated the stock as a ‘hold’ with a target price of RM4.40, a small upside of about 4% to the current trading price. At the midday break, IOI Corporation was trading at RM4.21 down three sen.
As a cash-rich company post-demerger, IOI Corporation is expected to generate RM1.1 billion to RM1.4 billion in annual operating cashflow compared to an annual capital expenditure (capex) requirement of RM410 million, Kenanga Research said.
According to the research house, IOI Corporation’s management has indicated their intention to take advantage of the company’s strong cash position to maintain dividends at 2013 levels (15.5 sen per share) and to exercise a share buy-back.
Since December last year, the Lee family has been actively buying up shares in IOI Corporations to the tune of 1.42 million shares or 0.22% of total issued and paid up capital.
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