• IOI Properties Group’s (IOIPG) wholly-owned Boulevard View Pte Ltd has submitted a bid for a 99-year leasehold land measuring 7,817.6 square metres (1.9 acres) at Marina View, Singapore. The bid price of S$1.5bil (RM4.7bil) is S$101 higher than the minimum requirement.

• The public tender was launched by Singapore’s Urban Redevelopment Authority (URA) on 28 June this year and closed on 21 September 2021. We understand that IOIPG is likely to win the award as it is the only tenderer (Exhibit 1). The acquisition price translates to S$1,378 psf per plot ratio (ppr), which can be developed up to 1.1mil sq ft. of gross floor area.

• This Marina View landbank is intended for mixed development, largely comprising residential and a 540-room hotel with the balance for commercial units (Exhibit 2).

• This is a smaller piece of land compared to IOIPG’s earlier acquisition in November 2016 for Central Boulevard (which has a size of 1.1 hectares or 2.7 acres) at S$2.6bil (RM8bil) or S$1,689 psf ppr for an office project with a gross development value (GDV) of S$3.5bil (or RM11bil). This translated to a cost-to-GDV of 73%. Both plots are located at Marina Bay area (Exhibit 3).

• Assuming IOIPG keeps a similar margin, we expect the potential project could carry an indicative GDV of S$2.1bil (or RM6.4bil). This will boost our SOP valuation and fair value by 3% to RM10.2bil and RM1.86/share respectively.

• This will also significantly raise the proportion of Singapore-based projects from 11% to the group currently to 21%. We also estimate a 7% increase in IOIPG’s FY23–24F earnings if sales commence in 2023.

• With the group’s current net gearing level at 0.5x as at 30 June 2021, we estimate that its FY22F gearing level will substantively increase to 0.7x, which should still be manageable without any capital raising exercise.

• Nevertheless, given the high development costs and significant impact to its balance sheet, we expect the company to form a joint venture with other partners to diversify the potential risks.

• We are positive on this value-accretive deal which could garner strong demand from its prime location in the central region of Singapore with accessibility of MRT stations as the economy recovers over the mid to longer term. While pending the award announcement and details from the company, we maintain our forecast and fair value for now.

• The stock currently offers a bargain FY22F PE of 8x vs. a 4-year average of 12x.

Source: AmInvest Research - 22 Sept 2021