News
The return of IOI Properties
13-May-2013
IN the world of tycoons, Tan Sri Lee Shin Cheng of IOI Corp Bhd is in the same league as Robert Kuok and T. Ananda Krishnan.
The low-profile Lee has always been recognised as THE palm oil man who has diversifed into other businesses over the years.
Now, with the much-anticipated relisting of IOI Properties Bhd slated for the third quarter, the investing community has perked up to Lee's forte as a property man.
Lee, who is the executive chairman and founder of IOI Corp, is the single largest shareholder of the company with a 44.8% stake. He has been accumulating IOI Corp shares over the last six months.
“People associate Lee Shin Cheng as a planter. They have forgotten that he is an equally good property developer as seen from IOI Properties' track record before its delisting.
“IOI is the sort of company that big money and institutions will be attracted to,” says one fund manager who used to invest in IOI Properties.
Prior to IOI Properties' delisting in 2009, it was the biggest property company in terms of profitability.
Even now under parent IOI Corp, IOI Properties is the second largest company in terms of operating profitability after SP Setia Bhd. As of its financial year ended June 30, 2012, IOI Properties recorded an operating profit of RM506.3mil.
“The listing of IOI Properties will certainly be interesting. It is one of the biggest property companies in Malaysia and now has a track record in China. As we all know, the China market is never easy to penetrate,” said Etiqa Insurance & Takaful Bhd's Head of Research Chris Eng.
The deal
Earlier in the week, news broke that IOI Properties is set to demerge from parent IOI Corp Bhd and will seek a relisting on the Main Market of Bursa Malaysia to become one of the biggest listed property companies in the country with total assets of RM15bil.
The asset size of IOI Properties would be worth more than RM12bil even after deducting liabilities.
To reward IOI Corp shareholders, not less than half of the RM15bil will be given back to shareholders in the form of a dividend-in-specie. Based on IOI Corp's 6.4 billion shares, this works out to more than RM1.20 per share.
IOI Corp shareholders will be getting more than 50% of their IOI Properties shares for free. This is because a property company typically trades at a discount to its book value, and hence, the market value of IOI Properties will be at a discount to the asset size of RM15bil.
The demerger exercise will also entail a renounceable rights issue, where existing shareholders who subscribe to the rights exercise will not be diluted.
“The question all investors are asking is whether this listing can unlock value.
“Plantation companies normally trade at higher price earning (PE) ratios compared to property companies.
Right now, property companies trade at PEs of 10 to 12 times. So we will want to see whether IOI Properties' PE will trade closer to IOI Corp's PE of around 17 times,” says Eng.
IOI Corp was suspended on Thursday, up 21 sen to RM5.33 pending the release of a material corporate exercise announcement.
Fair valuation?
Despite the accolades as one of the country' preeminent planters, IOI Corp is beholden to the market price of crude palm oil.
In a poll of 30 analysts listed on Bloomberg, there are 18 hold calls, 11 sell calls and 1 buy call for the stock.
The neutral and negative calls are mainly due to the poor visibility of CPO prices in the second half of the year. Analysts do acknowledge that refined palm oil inventories have normalised as of March.
UOB Kayhian analyst Leow Huey Chuen is the only analyst with a buy call on the stock with a fair value of RM5.70.
She says that the dividend-in-specie of more than RM1.20 translates into an effective dividend yield of 23% for IOI Properties.
“After the demerger, IOI's plantation business will be re-rated as a pure plantation play.
“Prior to the privatisation of IOI Properties in 2009, IOI Corp was trading at a forward PE of 18x to 22x versus the current 14x,” she says.
She adds that IOI Corp was a cheap way of participating in the listing of the largest entrepreneurial-driven listed property developer in terms of its net assets of RM12bil and a forecast earnings of RM800mil by 2014.
On the neutral fence is Public Invest Research, with a target price of RM4.90. The firm thinks that the relisting of IOI Properties will not come cheap based on its huge asset size.
“Assuming the listing valuation is based on the total net assets, we think the market cap would likely be at least RM12bil, making them the second largest property player on the Bursa by market cap, after UEM Land,” it says.
AmReseach's plantation analyst Gan Huey Ling who has a neutral call on the stock with a RM5.15 target price, says that the dividend-in-specie may provide a short term kicker to IOI's share price.
Based on her 2014 earnings of RM1.98bil and PE of 16.7 times, she values IOI Properties at RM7.3bil.
She says that IOI is currently trading at a 2014 PE of 17 times according to consensus estimates whereas property companies like Mah Sing and IJM Land are trading at PEs of 10 times to 12 times.
“For enhancement in shareholders' value, the listing of the property subsidiary should be carried out at a higher PE versus the holding company's valuation. However, due to market conditions, this would not be likely,” says Gan.
Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose points out that IOI Properties was an excellent property developer while IOI Corp Bhd was an outstanding upstream and downstream oil palm player.
“For sure, the company has got the track record and excellent management skills. At Aberdeen, we are long term holders with an investment horizon of 8 to 10 years. We used to be a shareholder of IOI Properties before its privatisation in 2009.
“We were very disappointed when we had to sell the stock because we considered the privatisation price of 0.66 times to its net tangible asset as greatly undervalued. We hope that this will not happen again,” says Ambrose.
An upmarket property developer In the making
Since IOI Properties ventured into Singapore and China in 2011 and 2012 respectively, the company has slowly been changing its image. It is no longer just a township developer and is moving towards becoming a high-end condominium and commercial developer.
This conscious effort is obvious as it has engaged world renowned Norman Foster as the architect for its South Beach development in Singapore.
Public InvestResearch said that currently, IOI Properties has an outstanding gross development value of RM28.2bil in Malaysia and SG$4.5bil (RM11.2bil) in Singapore.
The company has two projects in China, the first being a 7.7 acre piece of land in Xiamen which will be developed into a high-rise mixed development via a joint venture with a Taiwanese partner.
That project is expected to be completed in the next 2 years.
The second project, which is also in Xiamen would see the first phase development comprising four million sq ft of shopping mall, hotel, offices and residential units.
The RM2bil project will be its first independent project in China and is also expected to be completed two years later.
Gan says that in Singapore, the two projects which have received positive response are the Cityscape and Jalan Lempeng developments.
“Take-up rate for Cityscape is between 85% and 90% while IOI has sold about 100 units of the condominium project at Jalan Lempeng,” she says.
It is also on the back of the increased overseas contribution from Xiamen and Singapore that IOI Properties is anticipating a huge spike in its earnings for the next three financial years.
It is understood that IOI Properties' gross development value will be equally divided between its property businesses in Malaysia and its overseas operations.
Meanwhile as of 2012, IOI Properties had a book value of RM7.9bil. For the listing exercise, its book value will be boosted by the revaluation of five mature plantation estates, located mainly in Ayer Keroh in Malacca, Bahau in Negri Sembilan and Kulai in Johor.
IOI Properties has vast tracts of landbank, which were bought cheap and are yet to be revalued.
For instance, the Kulai Estate still has some 1,416.39ha that are yet to be developed, while the Bahau and Ayer Keroh estates have some 404.68ha for development each.
Kulai is anticipated to be the next bustling “Puchong township”.
TheStar | May 11, 2013
13-May-2013
IN the world of tycoons, Tan Sri Lee Shin Cheng of IOI Corp Bhd is in the same league as Robert Kuok and T. Ananda Krishnan.
The low-profile Lee has always been recognised as THE palm oil man who has diversifed into other businesses over the years.
Now, with the much-anticipated relisting of IOI Properties Bhd slated for the third quarter, the investing community has perked up to Lee's forte as a property man.
Lee, who is the executive chairman and founder of IOI Corp, is the single largest shareholder of the company with a 44.8% stake. He has been accumulating IOI Corp shares over the last six months.
“People associate Lee Shin Cheng as a planter. They have forgotten that he is an equally good property developer as seen from IOI Properties' track record before its delisting.
“IOI is the sort of company that big money and institutions will be attracted to,” says one fund manager who used to invest in IOI Properties.
Prior to IOI Properties' delisting in 2009, it was the biggest property company in terms of profitability.
Even now under parent IOI Corp, IOI Properties is the second largest company in terms of operating profitability after SP Setia Bhd. As of its financial year ended June 30, 2012, IOI Properties recorded an operating profit of RM506.3mil.
“The listing of IOI Properties will certainly be interesting. It is one of the biggest property companies in Malaysia and now has a track record in China. As we all know, the China market is never easy to penetrate,” said Etiqa Insurance & Takaful Bhd's Head of Research Chris Eng.
The deal
Earlier in the week, news broke that IOI Properties is set to demerge from parent IOI Corp Bhd and will seek a relisting on the Main Market of Bursa Malaysia to become one of the biggest listed property companies in the country with total assets of RM15bil.
The asset size of IOI Properties would be worth more than RM12bil even after deducting liabilities.
To reward IOI Corp shareholders, not less than half of the RM15bil will be given back to shareholders in the form of a dividend-in-specie. Based on IOI Corp's 6.4 billion shares, this works out to more than RM1.20 per share.
IOI Corp shareholders will be getting more than 50% of their IOI Properties shares for free. This is because a property company typically trades at a discount to its book value, and hence, the market value of IOI Properties will be at a discount to the asset size of RM15bil.
The demerger exercise will also entail a renounceable rights issue, where existing shareholders who subscribe to the rights exercise will not be diluted.
“The question all investors are asking is whether this listing can unlock value.
“Plantation companies normally trade at higher price earning (PE) ratios compared to property companies.
Right now, property companies trade at PEs of 10 to 12 times. So we will want to see whether IOI Properties' PE will trade closer to IOI Corp's PE of around 17 times,” says Eng.
IOI Corp was suspended on Thursday, up 21 sen to RM5.33 pending the release of a material corporate exercise announcement.
Fair valuation?
Despite the accolades as one of the country' preeminent planters, IOI Corp is beholden to the market price of crude palm oil.
In a poll of 30 analysts listed on Bloomberg, there are 18 hold calls, 11 sell calls and 1 buy call for the stock.
The neutral and negative calls are mainly due to the poor visibility of CPO prices in the second half of the year. Analysts do acknowledge that refined palm oil inventories have normalised as of March.
UOB Kayhian analyst Leow Huey Chuen is the only analyst with a buy call on the stock with a fair value of RM5.70.
She says that the dividend-in-specie of more than RM1.20 translates into an effective dividend yield of 23% for IOI Properties.
“After the demerger, IOI's plantation business will be re-rated as a pure plantation play.
“Prior to the privatisation of IOI Properties in 2009, IOI Corp was trading at a forward PE of 18x to 22x versus the current 14x,” she says.
She adds that IOI Corp was a cheap way of participating in the listing of the largest entrepreneurial-driven listed property developer in terms of its net assets of RM12bil and a forecast earnings of RM800mil by 2014.
On the neutral fence is Public Invest Research, with a target price of RM4.90. The firm thinks that the relisting of IOI Properties will not come cheap based on its huge asset size.
“Assuming the listing valuation is based on the total net assets, we think the market cap would likely be at least RM12bil, making them the second largest property player on the Bursa by market cap, after UEM Land,” it says.
AmReseach's plantation analyst Gan Huey Ling who has a neutral call on the stock with a RM5.15 target price, says that the dividend-in-specie may provide a short term kicker to IOI's share price.
Based on her 2014 earnings of RM1.98bil and PE of 16.7 times, she values IOI Properties at RM7.3bil.
She says that IOI is currently trading at a 2014 PE of 17 times according to consensus estimates whereas property companies like Mah Sing and IJM Land are trading at PEs of 10 times to 12 times.
“For enhancement in shareholders' value, the listing of the property subsidiary should be carried out at a higher PE versus the holding company's valuation. However, due to market conditions, this would not be likely,” says Gan.
Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose points out that IOI Properties was an excellent property developer while IOI Corp Bhd was an outstanding upstream and downstream oil palm player.
“For sure, the company has got the track record and excellent management skills. At Aberdeen, we are long term holders with an investment horizon of 8 to 10 years. We used to be a shareholder of IOI Properties before its privatisation in 2009.
“We were very disappointed when we had to sell the stock because we considered the privatisation price of 0.66 times to its net tangible asset as greatly undervalued. We hope that this will not happen again,” says Ambrose.
An upmarket property developer In the making
Since IOI Properties ventured into Singapore and China in 2011 and 2012 respectively, the company has slowly been changing its image. It is no longer just a township developer and is moving towards becoming a high-end condominium and commercial developer.
This conscious effort is obvious as it has engaged world renowned Norman Foster as the architect for its South Beach development in Singapore.
Public InvestResearch said that currently, IOI Properties has an outstanding gross development value of RM28.2bil in Malaysia and SG$4.5bil (RM11.2bil) in Singapore.
The company has two projects in China, the first being a 7.7 acre piece of land in Xiamen which will be developed into a high-rise mixed development via a joint venture with a Taiwanese partner.
That project is expected to be completed in the next 2 years.
The second project, which is also in Xiamen would see the first phase development comprising four million sq ft of shopping mall, hotel, offices and residential units.
The RM2bil project will be its first independent project in China and is also expected to be completed two years later.
Gan says that in Singapore, the two projects which have received positive response are the Cityscape and Jalan Lempeng developments.
“Take-up rate for Cityscape is between 85% and 90% while IOI has sold about 100 units of the condominium project at Jalan Lempeng,” she says.
It is also on the back of the increased overseas contribution from Xiamen and Singapore that IOI Properties is anticipating a huge spike in its earnings for the next three financial years.
It is understood that IOI Properties' gross development value will be equally divided between its property businesses in Malaysia and its overseas operations.
Meanwhile as of 2012, IOI Properties had a book value of RM7.9bil. For the listing exercise, its book value will be boosted by the revaluation of five mature plantation estates, located mainly in Ayer Keroh in Malacca, Bahau in Negri Sembilan and Kulai in Johor.
IOI Properties has vast tracts of landbank, which were bought cheap and are yet to be revalued.
For instance, the Kulai Estate still has some 1,416.39ha that are yet to be developed, while the Bahau and Ayer Keroh estates have some 404.68ha for development each.
Kulai is anticipated to be the next bustling “Puchong township”.
TheStar | May 11, 2013