IOIPG has received a proposal from its CEO to redevelop Shenton House in Singapore, which he acquired for SGD538.0m (c.RM1.9b). IOIPG need to fork out another SGD476m (RM1.7b) for land premium, etc, in addition to the development cost. We take comfort in Shenton House’s strategic location and Singapore’s stature as a global financial centre. We maintain our forecasts, TP of RM1.75 and UNDERPERFORM call.

IOIPG has received a proposal from its CEO, Mr Lee Yeow Seng, to take part in the development of Shenton House, a commercial property in Singapore that has been successfully tendered for at SGD538.0m (c.RM1.9b). The building was bought by Shenton 101, a company owned by Mr. Lee. He pursued the bid via his private vehicle rather than through IOIPG due to the acquisition's size and the tight timeline set by its collective sales committee. The 3,377 sq m (i.e. 36,346 sq ft) Shenton House site appears to be intended for the development of a Grade A office with luxury-branded service residences, which is scheduled for construction at end-CY25 or 1HFY26. The current land lease of Shenton House has approximately 44 years remaining, with the potential to be extended to a fresh 99-year leasehold.

IOIPG will acquire Shenton 101 from Mr. Lee. In addition, IOIPG will have to fork out and additional SGD476m (RM1.7b) for land betterment premium, lease top-up premium and transaction expenses. This total outlay of SGD1,104m (RM3.55b) does not include the development cost.

We are mindful of the size of the investment outlay for IOIPG. The initial investment of SGD1,104m (RM3.55b) alone will increase its net debt and gearing of RM16.7b and 0.73x as at end-Mar 2024 to RM20.3b and 0.89x. Nonetheless, we take comfort in Shenton House’s strategic location and Singapore’s stature as one of the top financial centres in the world.

Forecasts. Maintained as contribution from the investment will not come in within our forecast period.

Valuation. Similarly, we maintain our TP as it is premature to put a value to the return from this investment. Our RNAV-based TP of RM1.75 is based on a 60% discount to its RNAV (see Page 3), vs.industry average of 55% as we include the above-mentioned development into our RNAV computation with an assumed development timeline of five years, typical of projects based in Singapore. There is no adjustment to our TP based on ESG given a 3- star rating as appraised by us (see Page 5).

Investment case. We continue to like IOIPG due to: (i) its focus on high-value products at matured townships with its well-diversified products, (ii) its expanding investment property portfolio which provides recurring incomes, and (iii) its presence in the vibrant property sector in Singapore. However, its valuations have become rich after the recent run-up in its share prices. Maintain UNDERPERFORM.

Risks to our call include: (i) a prolonged downturn in the local property market, (ii) rising mortgage rates hurting affordability, (iii) rising construction cost, and (iv) risks associated with overseas operations.

Source: Kenanga Research - 26 Jun 2024