News

• IOIProp entered into related party transaction to acquire Mayang Development and Nusa Properties from Tan Sri Dato’s Lee Shin Cheng for a total consideration of RM2,033.4m (including redemption of total redeemable non-cumulative preference shares and related party advances).

• Both companies have total landbank of 399.7 acres and located within IOI Resort City, adjacent to the current development by IOIProp. The estimated GDV is about RM20bn with development period over 10 years. The purchase consideration will be paid by 30% cash and 70% new share issue (at RM2.21/share) to vendor. The deal is expected to be completed by 1QCY16. Financial Impact

• The acquisition price translated to RM117 psf, as compared to third party valuer at RM144 psf and average transaction price of RM120-150 psf in Putrajaya and Cyberjaya. Land cost is about 10% of total GDV, which we deemed the acquisition price as fair.

• Balance sheet remain solid with net gearing only expected to increase slightly from 0.07x to 0.1x, still provides room for future landbank acquisition. We estimated the acquisition to increase RNAV by 17%, offsetting the 17% dilution in enlarged share base.

Pros/Cons

• Despite it is related party transaction, we are neutral on the deal as EPS dilution is offset by fair pricing and majority of the purchase consideration is finance through new share issue (70%), which shows the commitment of major shareholder to participate in future growth of the company. Tan S ri Dato’s Lee’s indirect stake will increase from 51% to 59% post acquisition.

• We believe this is a synergy acquisition as this will expand IOIP rop’s landbank in IOI Resort City from existing 50 acres to 450 acres and complement existing development. In addition, this also provides opportunity for IOIProp to embark on the development of second phase of IOI City Mall which already achieve 92% occupancy rate.

• IOIProp is one of the value stock in our universe coverage given it is only trading at 0.58x FY16 P/B as compare to peer at average 1x. We believe the stock warrants a re-rating given its strong track record in township development and its attractive valuation.

Risks

• Slowdown in China and Singapore.

Rating

BUY

• Posi tives: large war-chest for landbank acquisitions; enjoys vast and cheap landbank.

Negatives

• Could face sector headwinds in Malaysia.

Valuation

• Our TP is adjusted from RM2.27 to RM2.77 (based on unchanged 35% discount to RNAV) post adjustment on RNAV as we review all property developments and refine the assumption post annual report. Maintain BUY.

Source: Hong Leong Investment Bank Research - 21 Oct 2015