News

• IOIPG has successfully tendered for a parcel of 2.7 acres of prime leasehold land at Marina Bay, Singapore for SGD2.56bn (RM7.77bn).

• The land has a 13x plot ratio with maximum total floor area of 141,294 sqm (or 1.52m sf) with at least 70% allocated for office use with the remaining for additional office, commercial school, hotel and service apartments.

• The land is strategically located opposite Lau Pa Sat and proximity to One Raffles Quay and Marina Bay Financial Centre. It also connected to Raffles Places MRT station and future Shenton Way MRT station. Development period is 7 years higher than normal 5 years.

Financial Impact

• The acquisition price translates to SGD1,689 psf (based on maximum GFA). We understand the price is 16% premium to second highest bidder (from Mapletree Investments). Although it is the record highest price, it is only about 20% higher than the price Asia Square Tower sold for SGD1,409 psf back in Sep 2007.

• The recent office building transactions in surrounding are between SGD2,276 psf to SGD3,713 psf (versus our estimate selling price of SGD3,379 if we assume GDV of SGD 5.1bn).

• However, net gearing will increase from 0.22x to 0.70x if no other funding partners participate in this project.

• GDV has yet to be determined at this juncture. Based on assumption of land cost at 50% of total GDV, we estimate the GDV for this project at SGD5.1bn (or RM15.4bn). With PBT margin assumption of 15%, we estimate this project will increase our forecast RNAV by 6%.

Pros/Cons

• Overall we are neutral on the deal.

• We are positive as this is one of the prime lands for office development in Singapore and is in line with company target’s to grow its investment income from current 20% to 40% in the future. With the development period of 7 years, the acquisition could be timely as this could potential capture the rebound in office segment.

• However, we are also concerned on the sizeable value of land which could put pressure on its balance sheet with net gearing rising to 0.7x in the near term. One of the options is to look for funding or JV partners.

Forecast

• Unchanged pending more detail from management.

Rating

BUY ↔

• We like IOIProp for its strong track record in township development, attractive valuation (0.70x FY16 P/B versus peers at 1x) coupled with decent dividend payout.

Valuation

• TP is maintained at RM2.77 based on unchanged 35% discount to RNAV of RM4.26. Maintain BUY.

Source: Hong Leong Investment Bank Research - 14 Nov 2016