News  Last Friday, IOIPG made an announcement that they are terminating the conditional Share Sale Agreement (SSA) to acquire 546.46m shares of NT$10.0 each or 37.17% interest in Taipei’s Financial Center Corporation (TFCC), as they did not obtain the green light from the Foreign Investment Commission (FIA) of Taiwan.

Comments  We are relieved with IOIPG terminating the SSA in line with our neutral to negative view on the deal as per our earlier report dated 8 Dec 2014.

 While we think the price tag of RM2.75b for the 37.17% stake in TFCC is fair, potential asset accretion does not fully compensate for the dilution effect seen in core PER and ROE arising from the rights issuance as highlighted in our previous report. That said, we also believe that upsides are limited for Taipei 101 (in terms of income and valuation) in the medium-term.

 Despite the termination of the SSA, IOIPG is still able to claim back the deposit paid for the deal as the termination was due to the unfulfilled of a condition precedent, which further reinforced our positive view on the termination of the SSA.

Outlook  The group has recently launched their maiden Bandar Puteri Bangi (GDV: RM4.0b) in Jan-15, comprising apartments, shop offices and 2- storey terraces with total GDV of RM600m, and thus, we could be seeing strong sales numbers in 3Q15. We gather that the project has achieved 70.0% take-up/bookings rates. Other than this, sales for this year will be driven by ongoing projects. Xiamen 2 project (apartments) in China will likely kick off in FY16 rather than FY15.

Forecast  Following the termination of the SSA of TFCC, we have revised our FY15-16E earnings downwards by 4.0-10.0%, respectively, as we have previously factored in the potential earnings contribution from TFCC.

Rating Maintain MARKET PERFORM

Valuation  We are maintaining MARKET PERFORM on the stock with an unchanged Target Price of RM2.12 based on 60.0% discount to its FD RNAV of RM5.31, as we expect its prospect to remain subdued due to the challenging environment. The applied RNAV discount is much steeper compared to our sector discount average of 44.0% and closer to our FD RNAV discount rate of 65.0% for UEMS.

Risks  Failure to meet sales targets. Sector risks, including overly negative policies. 

Source: Kenanga