Journey to Wealth
IOI Corporation - China Property Venture
News According to The Edge Financial Daily, IOICORP will begin construction of its first independent property development in Xiamen, China next year. Gross development value (GDV) estimate of the project is RM2.0b.
The report quoted Tan Sri Datuk Lee Shin Cheng (IOICORP CEO) saying that the Group will convert its recently purchased bought land in Xiamen (for RM587m) to mix-development project over the next ten years. First phase of the project will be a 4m sqf development of a shopping mall, hotel, offices, and residential units and is expected to be completed in two years' time.
Comments Neutral on the news. Additionally, significant earnings contribution will likely take place later (we estimate more than 2 years from now).
It was also mentioned in the news that IOICORP will sell residential components but keep the rest for investment. However, breakdown of GDV were not provided and we are seeking further clarity on the matter.
Although the project should contribute positively to IOICORP earnings from FY15E onwards, the Group's move to expand its property division instead of plantation division may not bode well for investors who invest in IOICORP as proxy to plantation sector.
Outlook We believe core earnings growth for FY13E-FY14E will be generally unexciting at 12%-7% due to its maturing tree.
Its plantation division suffered a 4th consecutive year of FFB yield decline to 23.18mt/ha in FY12. However, the group's strong cash flow should enable IOICORP to maintain its stable dividend of > 15.0 sen.
Forecast No change to our FY13E-FY14E earnings of RM2.05bRM2.11b pending details from the management.
Rating Maintain MARKET PERFORM
Maturing oil palm trees and a slowdown in the Singapore property market may keep the earnings upside limited.
Valuation Maintaining TP of RM5.20 based on FY13E PER of 16.2x (which is a 3-year average PER).
Risks A sustained drop in CPO prices.
Worse than expected margin for the property and downstream divisions.
Source: Kenanga
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