• NEUTRAL, new MYR2.40 TP from MYR2.47, 11% upside with c.3% FY25 (Jun) yield. We are neutral on IOI Properties’ string of retail and hotel asset acquisitions, which are worth MYR1.2bn. These, on top of the potential acquisition of Shenton House in Singapore (SGD1.01bn) and the upcoming launch of the Marina View project, may mean that the group’s financial commitment could lead to a change in its capital structure, while the potential (REIT) listing of its hospitality assets may take time. Post tweaks to our RNAV calculation, our new TP is based on an unchanged 55% discount to RNAV.

• More acquisitions announced. In addition to the (previously announced) acquisitions of W Kuala Lumpur Hotel (MYR270m) and Courtyard by Marriott Penang Hotel (MYR165m), IOIPG announced two more acquisitions from Tropicana Corp (TRCB MK, NR) yesterday. These include 9.86 acres of freehold land in Pulau Langkawi worth MYR90.1m, and Tropicana Gardens Mall worth MYR680m. The first two acquisitions were completed in Feb 2024 and July 2024, while the latest two acquisitions are expected to be completed in 4Q24 and 1Q25. These acquisitions are not subject to shareholders’ approval. Management intends to fund these acquisitions via internal funds and bank borrowings.

• Attractive buys, nonetheless. Undeniably, the acquisitions were done at attractive valuations. For instance, based on a price tag of MYR680m and NLA of 1,051,107sqf, the Tropicana Gardens Mall acquisition price is MYR647psf (about a 7% gross yield). The mall is only four years old, and currently has an occupancy rate of 77%.

• Near-term financing commitment may be high. IOIPG’s net gearing stands at 0.74x as at 3QFY24. Although IOI Central Boulevard office towers will be completed in September, we note that its upcoming cash flow commitments may limit its financial flexibility going forward. Apart from the MYR1.2bn worth of acquisitions from Tropicana Corp, IOIPG plans to roll out its Marina View project in Singapore by the year-end. The Marina View site was acquired at SGD1.508bn in Sep 2021, and we expect take-up for these luxurious units to be slow, given the price point (ASP of SGD5k psf). In addition, IOIPG may also take over Shenton House from Group CEO and substantial shareholder Lee Yeow Seng.

• Expect higher net gearing. Despite the potential revaluation of IOI Central Boulevard offices, we think overall net gearing will still be higher from the current level, while the plan for a hospitality REIT may take some time to realise. Apart from the acquisitions mentioned above, IOIPG is going to expand its IOI City Mall Putrajaya with a third phase of developments in the pipeline. We make no changes to our earnings forecasts for now, pending more details on these acquisitions from management.

Source: RHB Research - 24 Jul 2024