Stock Name: IOICORP
Company Name: IOI CORPORATION BHD
Research House: MAYBANK
IOI Corp Bhd
(June 16, RM5.30)
Maintain hold at 5.30 with revised target price RM5.50 (from RM6.35): The recent foray into South Beach and IOI Resort City's development plans are set to accelerate IOI's property capex spending by about RM2.3 billion over the next three years, with 78% of these channelled to building its property investment portfolio. Investors looking for greater exposure to plantation have been slowly shying away from IOI. IOI lacks immediate re-rating catalyst, especially with limited earnings upside from its matured plantation while the new property ventures do not bring in immediate earnings; they are largely for investments. Our revised target price of RM5.50 on 16 times FY12 EPS is based on 1-SD below its five-year historical mean PER. Maintain 'hold'.
Corporate exercises in recent years suggest that IOI is shifting its focus towards the property business. Between FY07 and FY10, IOI spent RM1.6 billion in capex for the property business, higher than the combined capex spent for plantations (RM700 million) and resource-based manufacturing (RM800 million). IOI's last major plantation upstream acquisition was in 2007. It has perhaps been discouraged by limited upstream opportunities in this region.
In April 2011, IOI announced an investment of up to S$817 million (RM2 billion) for a 49.9% stake in the South Beach project in Singapore. This mixed development project, to be jointly developed by City Development (not rated), has a potential GDV of S$3.5 billion. We understand the current plan is to complete the project by 2015 and keep about 77% of the project (hotel, retail and office space) for recurring income. Closer to home, IOI is also developing the more than RM1 billion IOI Resort City, Putrajaya for rental income, with Phase 1 targeted for completion in 2013.
Following South Beach and IOI Resort City's investments, we have raised our FY11-FY13 capex assumptions from about RM300 million to RM1 billion each year. IOI will still be able to fund these investments via borrowings (with a low net gearing of 16% as at end-March 2011) and internally generated funds. Project financing for South Beach will be off-balance sheet as IOI has no controlling stake. We marginally raise our FY12-FY13 net profit forecasts by 1% and 5% respectively to factor in Singapore's contributions. ' Maybank IB Research, June 16
This article appeared in The Edge Financial Daily, June 17, 2011.
Company Name: IOI CORPORATION BHD
Research House: MAYBANK
IOI Corp Bhd
(June 16, RM5.30)
Maintain hold at 5.30 with revised target price RM5.50 (from RM6.35): The recent foray into South Beach and IOI Resort City's development plans are set to accelerate IOI's property capex spending by about RM2.3 billion over the next three years, with 78% of these channelled to building its property investment portfolio. Investors looking for greater exposure to plantation have been slowly shying away from IOI. IOI lacks immediate re-rating catalyst, especially with limited earnings upside from its matured plantation while the new property ventures do not bring in immediate earnings; they are largely for investments. Our revised target price of RM5.50 on 16 times FY12 EPS is based on 1-SD below its five-year historical mean PER. Maintain 'hold'.
Corporate exercises in recent years suggest that IOI is shifting its focus towards the property business. Between FY07 and FY10, IOI spent RM1.6 billion in capex for the property business, higher than the combined capex spent for plantations (RM700 million) and resource-based manufacturing (RM800 million). IOI's last major plantation upstream acquisition was in 2007. It has perhaps been discouraged by limited upstream opportunities in this region.
In April 2011, IOI announced an investment of up to S$817 million (RM2 billion) for a 49.9% stake in the South Beach project in Singapore. This mixed development project, to be jointly developed by City Development (not rated), has a potential GDV of S$3.5 billion. We understand the current plan is to complete the project by 2015 and keep about 77% of the project (hotel, retail and office space) for recurring income. Closer to home, IOI is also developing the more than RM1 billion IOI Resort City, Putrajaya for rental income, with Phase 1 targeted for completion in 2013.
Following South Beach and IOI Resort City's investments, we have raised our FY11-FY13 capex assumptions from about RM300 million to RM1 billion each year. IOI will still be able to fund these investments via borrowings (with a low net gearing of 16% as at end-March 2011) and internally generated funds. Project financing for South Beach will be off-balance sheet as IOI has no controlling stake. We marginally raise our FY12-FY13 net profit forecasts by 1% and 5% respectively to factor in Singapore's contributions. ' Maybank IB Research, June 16
This article appeared in The Edge Financial Daily, June 17, 2011.
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