INVESTMENT HIGHLIGHTS

• Selling 70% stake in Loders Croklaan for RM3.94b

• RM2.51b of one off gain

• 13.0 sen dividend

• FY19 earnings estimate increased but core net income lowered

• Upgrade to BUY with higher TP of RM5.27 .

Selling 70% stake in Loders Croklaan for RM3.94b. IOI Corporation Berhad (IOICORP) has announced that it is selling 70% controlling stake in IOI Loders Croklaan (Loders) to Bunge Limited for Euro 297m plus USD595m. This is equivalent to RM3.94b. Note that IOICORP will hold the remaining 30% stake in Loders after the completion of the deal. Loders business focus is in the manufacturing of specialty oils and fats which is a sub segment of IOICORP’s resource based manufacturing segment.

RM2.51b of one off gain. IOICORP is expected to record a gain on disposal of RM2.51b from the 70% stake disposal in Loders and the remeasurement of IOICORP remaining 30% stake in Loders. Expected completion date is in the 4QCY2018 (equivalent to IOICORP’s 2QFY2019).

13.0 sen dividend. Out of the proceeds of RM3.94b, IOICORP plans to distribute RM788m (or 20% of the amount) as dividend to shareholders within the next 12 months. We have increased our FY18 dividend by the similar amount to total 23.0 sen representing attractive yield of 5.1%.

FY19 earnings estimate increased but core net income lowered. ???????FY19 net income is boosted by the gain on disposal of RM2.51b to RM3.79b. However, Core Net Income (CNI) is reduced by 2% to RM1.25b to reflect lower earnings contribution from Loders. Despite the lower FY19 CNI, we do not discount the possibility that IOICORP may expand its upstream plantation with the proceeds which will improve FY19 CNI. Net gearing is expected to decline to 0.25x (from 0.78x as of end-June 2017).

Upgrade to BUY with higher TP of RM5.27: We have increased our Target Price to RM5.27 (from RM4.95) after increasing our Forward PE to 26.3x (from 24.7x). Our valuation has been upgraded to +1.0SD Valuation (from +0.5SD Valuation) due to the near term dividend of 13.0 sen and substantial improvement in balance sheet after the 70% stake sale in Loders.

Source: MIDF Research - 13 Sept 2017