News

• IOIPG announced to acquire 6.2 acres of leasehold land in Xiamen for RMB2.324bn or RM1.4bn through tender.

• The land has 2.51x plot ratio with total floor area of 63,000 sq meter. 91% of the area will be used for residential development while the remaining 9% for commercial & community service centre.

Financial Impact

• The acquisition price translates to RMB36,889/sq meter/ floor area. We understand that there were 2 parcels of lands adjacent to the IOIProp’s newly acquired land which have tendered out at RMB37,512 to RMB 38,345.

• Balance sheet remains solid post land acquisition with net gearing to increase from 0.14x to 0.22x.

• No GDV guidance was given. Based on assumption of land cost at 30% of total GDV, we estimate the GDV for this project at RMB7.7bn (or RM4.7bn). With EBIT margin assumption of 20%, we estimate this project will increase our forecast RNAV by 2%.

Pros/Cons

• We are positive on the land acquisition deal as this will help to replenish its landbank and sustain its sales in China. This is the third land acquisition in China after IOI Park Bay (GDV: 1.8bn) and IOI Palm City (GDV: RMB6bn).

• The land is strategically located within the new Xiang An CBD which is targeted to be a new integrated eco city. A new Xiamen international airport will also be located in Xiang An. Connectivity is good with an undersea tunnel linking to the main island of Xiamen and is currently served by 2 highways.

• To recap, with the strong recovery in Chi na’s property market, Phase 1 and Phase 2 for IOI Palm City in Xiamen are almost fully taken up. IOIProp is targeting to launch a 46 storey high-end condo with total GDV of RMB1bn. With this new acquisition, existing remaining GDV in China will tripled from RMB4bn to RMB11.7bn, which will help sustain sales for next 7-8 years.

Forecast

• Unchanged.

Rating

• BUY

• Positives: highly liquid proxy to property sector; large war-chest for landbank acquisitions; has exposure to Singapore and China property markets

• Negatives: Prolonged sector headwinds in Malaysia, with Singapore markets at the low point of their cycles.

Valuation

• TP maintained at RM2.77 based on unchanged 35% discount to RNAV. Maintain BUY with dividend yield of 3.2%.

Source: Hong Leong Investment Bank Research - 30 Aug 2016