News  IOI Corporation (IOICORP) turned ex-entitlement yesterday on 19-Dec-2013. Recall that the entitlement comprises: (i) one IOIPROP shares will be distributed in-specie to IOICORP shareholders for every three IOICORP shares held and (ii) for every six IOICORP shares held, there will be one IOIPROP Restricted Offer For Sale (ROS) offered at RM1.76 or 30% discount to the final IPO listing price of RM2.51.

 Accordingly, IOICORP share price has been adjusted down by RM0.97 to reflect the ex-entitlement. Note that the adjustment of RM0.97 is calculated as 1/3*(RM2.51) + 1/6 (RM2.51-RM1.76) to reflect the entitlement.

Comments  As a result of the the demerger, IOICORP has regained its status as the biggest pure plantation play among the big cap planters.

 Although we have reduced our Target Price, we believe that the upside from IOIPROP IPO (assuming its eventual share price is higher than its IPO price) will be more than enough to compensate for the reduction.

Outlook  We maintain our view that IOICORP valuation should be re-rated higher as a result of this successful demerger exercise and IOICORP should trade on par with KLK, valuation-wise.

Forecast  We have excluded the earnings from the property division completely to reflect the new IOICORP structure. Hence, FY14E and FY15E core earnings have been reduced by 29% and 33% respectively to RM1.29b and RM1.50b respectively.

Rating Maintain OUTPERFORM

IOICORP is now the biggest listed plantation company in Malaysia which is privately run with pure plantation exposure in both upstream and downstream operations. With its huge market cap of RM29.4b and our bullish view on CPO prices, we think that IOICORP will attract investors’ interest especially if CPO prices surged above RM2700/mt.

Valuation  We have rolled over our valuation to FY15 EPS and also lowered our FY15E EPS to 23.4 sen (from 35.1 sen). Based on unchanged Fwd. PE of 21.2x, we arrived at our new Target Price of RM4.95 (previously RM6.70).

Risks to Our Call Lower-than-expected CPO prices.

 Lower-than-expected margin for downstream division.

Source: Kenanga