Research firms neutral on IOI's Chinese property development project

KUALA LUMPUR (Oct 30): Research firms remained neutral on a news report that IOI Corporation Bhd will begin construction of its RM2 billion independent property development in Xiamen, China next year.

Kenanga Research said although the project is expected to contribute positively to the earnings of the company from financial year 2015, IOI's move to expand its property division instead of plantation, may not bode well for investors who invest in the entity as a proxy to the plantation sector.

"Additionally, a significant earnings contribution will likely take place later (we estimate more than two years from now)," the research house said.

On the other hand, Hong Leong Investment Bank (HLIB) Research said despite the recent signs of warming in China's real estate sales and land transactions, the near-term economic uncertainties in China had influenced the firm's neutral position to the proposed development.

"It also remains to be seen if the property policy tightening in China will remain the post leadership transition next month.

"Nevertheless, we taken comfort that IOI Corp will have not an issue in funding the project, given its net debt and net gearing of RM3.8 billion and 0.3x, respectively," it added.

A recent news report stated that IOI is set to commence works for the Chinese project, with an estimated gross development value of RM2 billion.

The report quoted the chief executive officer of IOI, Tan Sri Lee Shin Cheng as saying, the group will convert its recently purchased land in Xiamen to a mixed-development project over the next 10 years.

The first phase of the project will consist of a four million square feet development of a shopping mall, hotel, offices and residential units, and is expected to completed in two years time.

Despite the property development news, HLIB Research has maintained a "hold" call on the stock of IOI with a target price of RM4.72, while Kenanga Research maintained the "market perform" tag with a target price of RM5.20. — Bernama