IOI announced that it has completed another 10% stake in Loders for ~RM466m. With the completion of the share sale, IOI’s stake in Loders has been reduced to 20% (from 30% previously). The share sale will result in an estimated loss of ~RM50m, which is non-core in nature. Disposal loss aside, the equity interest reduction in Loders will result in its earnings contribution to IOI reducing by about RM50m p.a. (based on our estimates), which is insignificant given IOI’s large earnings base. Maintain earnings forecasts, TP of RM4.36 (20x CY2024 core EPS of 21.8 sen) and BUY rating.

NEWSBREAK

Disposed 10% stake in Bunge Loders Croklaan Group. IOI announced that it has completed the sale of 1,800 shares (representing its 10% shareholding) in Bunge Loders Croklaan Group B.V. (Loders) to Koninklijke Bunge B.V. (KBBV, a wholly-owned subsidiary of US listed Bunge Ltd) for ~RM466m.

More details on the share sale. The share sale is provided for in the shareholders’ agreement (SHA) entered into by KBBV an IOI in 2018 and the share sale consideration is based on the mechanism for the put and call options provided in the SHA. With the completion of the share sale, IOI’s stake in Loders has been reduced to 20% (from 30% previously), and accordingly, the existing put and call options provided in the SHA have been terminated. Recall, IOI acquired the entire business of Loders from Unilever Plc and Unilever NV for RM814m in 2002, and subsequently Sep 2017, IOI entered into a definitive share purchase agreement with KBBV to dispose 70% stake in Loders and its related businesses to KBBV for RM3.79bn.

Existing business collaboration remains. In its announcement, IOI shared the existing business collaboration between IOI and Bunge remains, and both parties will continue to harness the benefits of existing synergistic partnership in expanding Loders’ business.

HLIB’s VIEW

Financial impact. Based on IOI’s estimate, the share sale will result in a loss of ~RM50m, which is non-core in nature, as bulk of the disposal loss is related to fair value loss arising from de-recognition of the terminated put and call options. Disposal loss aside, the equity interest reduction in Loders will result in its earnings contribution to IOI reducing by about RM50m p.a. (based on our estimates), which is insignificant given IOI’s large earnings base.

Forecast. Maintain for now, pending further update in its upcoming results briefing.

Maintain BUY with unchanged TP of RM4.36. Maintain BUY rating on IOI, with unchanged TP of RM4.36 based on 20x CY2024 core EPS of 21.8 sen.

Source: Hong Leong Investment Bank Research - 8 Aug 2022