IOI investors to gain from unit's lower entry price

This is written by my colleague Lim Cian Yai.

KUALA LUMPUR: IOI CORP Bhd shareholders are poised to benefit from lower entry price in its property division, which will be relisted under a new listing company (ListCo) by year-end.

Analysts said the ListCo is well positioned for steady earnings growth underpinned by booming property sales in the Klang Valley, Johor, Singapore and China.

They pointed out that IOI Corp shareholders may gain more than RM1.49 per share from the ListCo listing.

With the ListCo's indicative issue price to be at least RM4.46, each IOI Corp shareholder will pay 30 per cent less of the price, or a discount of RM1.49.

"The gain will be greater if the actual listing price turns out to be higher than RM4.46," said JF Apex Securities, which has upgraded IOI Corp from "hold" to "buy" with a target price of RM6.57.

The ListCo is set to be listed on Bursa Malaysia's Main Market via distribution in specie of about 2.16 billion shares (one ListCo share for three IOI Corp shares held) and non-renounceable restricted offer for sale of 1.08 billion ListCo shares (one ListCo share for six IOI Corp shares held) to IOI Corp shareholders.

Public Investment Bank believes the ListCo's valuation will not come cheap based on several factors including its strong earnings growth for the next three years and market value of appraised properties at RM18 billion.

The ListCo also has one of the industry's highest operating profit margin of 50 per cent and international exposure across Malaysia, Singapore and China.

Kenanga Research analyst Alan Lim Seong Chun has a "neutral" view on the relisting plan. "The positive side of the deal is the unlocking of the value of IOI Corp's property division and a higher rerating of its plantation business."

The bad aspect is that IOI Corp's earnings are expected to plunge by about 28 per cent in 2014 due to the absence of property contribution.

"Due to lower crude palm oil (CPO) prices, IOI Corp's financial year 2014 core earnings will slide 17 per cent to RM1.5 billion. Besides, its net gearing will also soar to 0.5 times from the current 0.3 times as equity portion decreases," Lim told Business Times yesterday.

He said IOI Corp may therefore need to expand plantation lands to offset the potential significant losses. 

IOI Corp executive chairman Tan Sri Lee Shin Cheng, however, maintained on Tuesday that its joint venture with Indonesian plantation companies will help sustain its performance in the absence of property business.

"Our yields are improving, our trees are also matured and surely our profit will go up. Hopefully, this can cover potential losses from property," he said.

On Bursa Malaysia yesterday, IOI Corp was the third top loser, easing 3.3 per cent, or 18 sen, to close at RM5.28.