• Jointly develop Central Boulevard site with Hongkong Land

• Positive on the proposed JV

• Alleviate burden on balance sheet

• Upgrade to BUY from Neutral with a revised TP of RM2.41

Jointly develop Central Boulevard site with Hongkong Land. IOI Properties Group Berhad (IOIPG) has entered into a Memorandum of Agreement with Hongkong Land International Holdings Limited (Hongkong Land) to set up a joint venture (JV) to jointly develop and manage prime Central Boulevard site in Singapore. Recall that the land was awarded to IOIPG following a tender in November 2016. Once the JV is set up, IOIPG will hold 67% of the JV company and Hongkong Land will hold 33%. The proposed JV is expected to be completed by 1QCY2018.

Positive on the proposed JV. Project envisaged comprises two office towers and a small retail podium. We are positive on the proposed JV with Hongkong Land as we view that the entry of Hongkong Land will ensure Central Boulevard site to be a successful venture for both IOIPG and Hongkong Land considering the expertise of Hongkong Land in managing properties in Hong Kong and Singapore. Notably, Hongkong Land currently manages both One Raffles Quay and Marina Bay Financial Centre through Raffles Quay Asset Management Pte Ltd while Central Boulevard site is located between these two properties. Both of the two properties are enjoying high occupancy rates of >99%, hence we expect IOIPG to leverage on expertise of Hongkong Land to fill up the spaces in upcoming office towers on Central Boulevard site.

Alleviate burden on balance sheet. The proposed JV will address rising net gearing issue of IOIPG. Note that net gearing of IOIPG climbed to 0.64x in 3QFY17 from 0.14x in 4QFY16 post land tender in Singapore and Xiamen, China. With the entry of Hongkong Land to take up 33% stake or equivalent to SGD 0.94b in Central Boulevard project, we estimate net gearing of IOIPG to decline to a more comfortable level of 0.50x from 0.64x.

Upgrade to BUY from Neutral with a revised TP of RM2.41. We maintain our earnings forecast as we do not expect earnings impact in the near-term from the proposed JV. Our TP is revised higher to RM2.41 from RM2.35 after incorporating the latest equity figures in our RNAV valuation, based on unchanged 40% discount to fully-diluted RNAV. We upgrade IOIPG to BUY as we see the JV with Hongkong land improves the prospect for IOIPG’s property development in Singapore while also improves balance sheet of IOIPG. Meanwhile, long-term catalysts for IOIPG include its strategic landbank of 1,338 acres in Ayer Keroh which should benefit from High Speed Rail project while its Bandar Puteri Warisan project (136 acres) in Sepang should benefit from opening of Xiamen University Malaysia Campus in Sepang.

Source: MIDF Research - 16 Jun 2017