News

IOIPG  propos ed  renounceable  rights  issue  of 539,835,787  new  ordinary  shares  at  an  issue  price  of RM1.90 per  rights share  on the basis of  one  (1)  rights share  for  every  six  (6)  IOIPG  shares  at  an  entitlement date to be determined  later.

Financial Impact

Based on the issue price of RM1.90, IOIPG would raise RM1,025.7m,  to  be  used for (1) capex of  RM500m; (2) investment  opportunities  of  RM200m;  (3)  working capital of RM324.8m  and (4) expenses of RM0.9m.

We understand that bulk of the raised fund will be used for  developments  in  Klang  Valley,  particularly  for  its townships in both Bangi and Sepang, as well as for the integrated  development  in Putrajaya.

Basic  dilution  of  the  proposed  exercise  is  about  14% and  will  reduce  our  TP  from  RM3. 94  to  RM3.38. However,  we  believe  the  dilution  will  be  mitigated  by incremental  earnings  from  IOIPG’s  future  investment opportunities.

Furthermore, we are ex pecting a boost in sales upon its property launch in  Xiamen in FY15 should the  Chinese government  gradually  lifts  its  cooling  measures.  In addition, the  excitement  of  LRT extensions in Puchong is  also  likely  to  boost  its  selling  prices  by  as  much  as 50%, in our view.  

Gross  gearing  will  be  slightly  reduced  from  0.18x  to 0.17x post the rights issue exercise.

Comments 

We  are  positively  surprised  on  the  proposed  exercise as  it  strengthens  the  balance  sheet  without  incurring additional interest expenses as well as to minimize any potential cash outflow  in respect of interest servicing.

The  proposed  rights  issue  will  also  provide  an opportunity for existing shareholders of IOIPG to further participate  in  the  group  at  a  discount  of  30%  to  the prevailing  market price.

To  note,  the  proposed  rights  will  be  fully  underwritten by  its  major  shareholders .  The  prop osed  exercise  is expected to be completed by 1QCY15.

Risks

• 28%  exposure  to  China  and  Singapore  in  terms  of GDV, making it sensitive to any external slowdown  and forex fluctuations.

Rating

BUY

• Positives : highly liquid  proxy t o property sector;  large war-chest  for  landbank  acquisitions;   has  exposure  to Singapore  and  China  property  markets;  enjoys  vast and cheap landbank.
• Negatives :   Could  face  sector  headwinds  in  Malaysia, while  the  Singapore  and  China  property  markets  are also currently at the low point of their cycles .

Valuation

• Maintain  TP  at  RM3.94  (10% discount to RNAV ,  17.3x CY15  P/E)  as we  anticipate  strong re-rating for  IOIPG when the Singapore and China markets come into their upcycles.  Our  TP  will be adjusted to  RM 3.38  post the rights issue exercise.  Maintain  BUY.

Source: Hong Leong Investment Bank Research - 11 Nov 2014