IOI Corp Bhd (Jan 17, RM5.33)
Maintain underperform at RM5.34 with target price of RM4.60: IOI Corp’s wholly-owned subsidiary Multi Wealth (S) Pte Ltd has won the bid for a site in Jalan Lempeng, near Clementi town centre in Singapore. It put in the highest bid of S$408 million (RM995 million) or S$554.35 per sq ft (psf) for the 99-year leasehold site. It has a maximum gross floor area of 68,369.28 sq m (736,000 sq ft) based on a gross plot ratio of 2.8. It can yield an estimated 685 dwelling units. The land tender attracted eight bids. IOI’s bid was 13% above the second highest bid and 22% above the third highest. The tender was launched on Nov 29 and closed on Jan 12 this year.
While the project could add 3% to 5% to FY13/FY14 ending June earnings, this is offset by our negative view on the Singapore property market. We maintain our “underperform” call (target basis of 14 times CY13 price-earnings ratio [PER]) in view of its rich valuations and earnings risk from downstream and property activities.
The win is a slight surprise to us as we did not expect the group to venture into another Singapore property project so soon after its recent purchase of the South Beach project. The Clementi condo is strategically located and should attract pent-up demand from residents in the area. We estimate the breakeven price to be S$950 to S$1,000 psf and selling price to be in the range of S$1,100 to S$1,150 psf. But we are cautious on the Singapore property market given the recent hike in stamp duties. We expect prices to correct 15% to 10% in 2012. The acquisition will raise the group’s net gearing ratio from 20% to 27% and increase property earnings from around 25% of group earnings currently.
We maintain our “underperform” call and recommend Sime Darby Bhd for exposure to Malaysian planters. We are neutral on this news as the potential earnings upside from the project is offset by IOI Corp’s rising exposure to the more competitive Singapore property market, which may dilute its profit margins and PER over time. — CIMB Research, Jan 17
This article appeared in The Edge Financial Daily, January 18, 2012.
Maintain underperform at RM5.34 with target price of RM4.60: IOI Corp’s wholly-owned subsidiary Multi Wealth (S) Pte Ltd has won the bid for a site in Jalan Lempeng, near Clementi town centre in Singapore. It put in the highest bid of S$408 million (RM995 million) or S$554.35 per sq ft (psf) for the 99-year leasehold site. It has a maximum gross floor area of 68,369.28 sq m (736,000 sq ft) based on a gross plot ratio of 2.8. It can yield an estimated 685 dwelling units. The land tender attracted eight bids. IOI’s bid was 13% above the second highest bid and 22% above the third highest. The tender was launched on Nov 29 and closed on Jan 12 this year.
While the project could add 3% to 5% to FY13/FY14 ending June earnings, this is offset by our negative view on the Singapore property market. We maintain our “underperform” call (target basis of 14 times CY13 price-earnings ratio [PER]) in view of its rich valuations and earnings risk from downstream and property activities.
The win is a slight surprise to us as we did not expect the group to venture into another Singapore property project so soon after its recent purchase of the South Beach project. The Clementi condo is strategically located and should attract pent-up demand from residents in the area. We estimate the breakeven price to be S$950 to S$1,000 psf and selling price to be in the range of S$1,100 to S$1,150 psf. But we are cautious on the Singapore property market given the recent hike in stamp duties. We expect prices to correct 15% to 10% in 2012. The acquisition will raise the group’s net gearing ratio from 20% to 27% and increase property earnings from around 25% of group earnings currently.
We maintain our “underperform” call and recommend Sime Darby Bhd for exposure to Malaysian planters. We are neutral on this news as the potential earnings upside from the project is offset by IOI Corp’s rising exposure to the more competitive Singapore property market, which may dilute its profit margins and PER over time. — CIMB Research, Jan 17
This article appeared in The Edge Financial Daily, January 18, 2012.
