INVESTMENT HIGHLIGHTS

• Terminating MOA with Hongkong Land

• Rising net gearing

• Earnings estimate maintained

• Maintain Neutral with a revised TP of RM1.89

Terminating MOA with Hongkong Land. IOI Properties Group Berhad (IOIPG) announced that it has terminated the Memorandum of Agreement (MOA) with Hongkong Land International Holdings Limited (HKLI) in relation to a proposed joint venture due to non-fulfilment of certain conditions precedent. Recall that IOIPG entered into MOA with HKLI in June 2017 to set up a joint venture (JV) to jointly develop and manage prime Central Boulevard site in Singapore.

Rising net gearing. We are negatively surprised by the development as we had previously anticipated the proposed JV to alleviate burden on IOIPG balance sheet. Recall that IOIPG has successfully bid for 1.09ha land in Central Boulevard for a tender consideration of S$2.57bil in November 2016 while HKLI is expected to take up 33% stake or equivalent to SGD 0.94b in the project. With the call-off of the proposed JV, IOIPG would have to raise fund for the project. With the estimated construction cost of around S$700m-S$800m, we estimate net gearing of IOIPG to potentially go up to 0.68x from 0.6x as of 2QFY18.

Earnings estimate maintained. We make no changes to our earnings forecast as the termination of JV with Hongkong Land is not expected to impact earnings of IOIPG. Potential rising cost of borrowings is likely to be capitalised.

Maintain Neutral with a revised TP of RM1.89. We revised our TP for IOIPG to RM1.89 from RM2.09 as we increase our discount to RNAV to 53% from 48% due to concern over rising net gearing. We maintain our Neutral call on IOIPG for its tepid earnings outlook and expected rising net gearing.

Source: MIDF Research - 14 Mar 2018