Analysts optimistic on IOI Corp’s demerger plan

KUALA LUMPUR: Analysts are optimistic on IOI Corp Bhd’s proposal to demerge its property business to create a listed entity with an expected market capitalisation of RM15 billion. The majority of research houses maintain “neutral” on IOI Corp.

Under the exercise, IOI Corp will distribute about 66% of the new entity IOI Properties Group Sdn Bhd shares to IOI Corp’s existing shareholders on a one-for-three basis.

It will also make a non-renounceable restricted offer for sale (ROS) of the remaining 33% of IOI Properties shares to IOI Corp shareholders on a one-for-six basis. The ROS will be offered at a 30% discount to the final listing reference price to be determined later.

CIMB Research advised investors to subscribe to the ROS due to its attractive pricing of a 30% discount to the final listing reference price.

Analyst Ivy Ng said the demerger would unlock the value of IOI Corp’s property division through the relisting of one of Malaysia’s largest property developers. “At the same time, investors will have the option of a pure exposure to either the group’s plantation or property business,” she said.

Ng maintained a “neutral” rating on IOI Corp at RM5.46, but with a higher target price of RM5.53 [from RM4.42], as the recent share price surge had priced in the potential gains from the demerger.

CIMB maintained its earnings forecasts for IOI Corp but raised the valuation for the property division and the price-earnings ratio (PER) valuation for its plantation business.

Maybank Investment Bank analyst Ong Chee Ting was “neutral” on IOI Corp, “as the implied valuation for the group, at RM5.53 per share, is near its current share price”.

“We see the limited upside to IOI Corp’s share price from this corporate exercise.

“Imputing a 20% discount to the independent valuers’ RM18 billion asset value for its property assets, the demerger will raise our revalued net asset value (RNAV) estimate for IOI Corp to RM5.53 per share,” he said.

Hong Leong Investment Bank (HLIB) raised its target price for IOI Corp to RM4.97 from RM4.09 previously and upgraded its rating to “hold” from “sell”.

HLIB analyst Chye Wen Fei said, “Despite our less than inspiring outlook on IOI Corp’s plantation earnings outlook, we are positive on the latest corporate move.”

HLIB raised its sum-of-parts-derived target price on IOI Corp to RM4.97 from RM4.09, as “we now value the property business based on the average of asset injection price and the market value”.

Kenanga Research said the estimated ROS price of RM1.75 to RM1.76 appears to be fair due to its 33% discount.

“We think long-term IOI Corp shareholders should subscribe to the ROS to avoid dilution in the current IOI Corp structure,” it said.

Kenanga maintained “market perform” on IOI Corp and kept its target price of RM5.40 based on an unchanged forward PER of 18.1 times on calendar year 2014 estimated earnings per share of 29.8 sen.

The research house said it is neutral on the exercise. “We do not deny it will be positive in the long run to spin off its property division as it will unlock the value of IOI Corp’s property division and potentially allow its plantation division to rerate higher,” it said.

The new entity, IOI Properties Group, is slated to be listed by year-end.

This article first appeared in The Edge Financial Daily, on May 16, 2013.


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