A Member of the TA Group MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048 COMPANY UPDATE Monday, 14 Nov 2016 FBM KLCI: 1,634.19 Sector: Property IOI Properties Group Bhd TP: RM2.52 (+7.7%) Wins Land Tender In Singapore THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Last Traded: RM2.34 Thiam Chiann Wen +603-21679165 cwthiam@ta.com.my www.taonline.com.my HOLD Wins Land Tender In Singapore IOIPG has won tender for a 2.7-acre (10,868.7sqm) parcel of land at Central Boulevard, a white site within the Marina Bay area (99-year lease term), for SGD2.57bn (or RM7.77bn based on SGD1.0 to RM3.026), from the Urban Redevelopment Authority of Singapore (URA). According to the announcement, IOIPG intends to fund the tender bid through borrowings and internal generated funds. The land tender is expected to be completed by 1Q17. Location of the Land The 2.7-acre plot at Central Boulevard is situated opposite the Lau Pa Sat food centre. It has a maximum permissible gross floor area (GFA) of 141,294 sq m. 100,000 sq m will be reserved for office use. Some 5,000 sq m will be earmarked for retail spaces, while the remaining GFA will be allocated for the development of residential, hotel and serviced apartments see Appendix 1. According to news reports, this future project will have direct links to surrounding developments such as One Raffles Quay and Marina Bay Financial Centre via underground and overhead pedestrian walkways. In addition, the site will also be connected to the adjacent Downtown MRT station, and is near Raffles Place and upcoming Shenton Way stations see Appendix 2 & 3. Replenishing Landbank in Singapore The gross development value and gross development costs for the proposed development to be undertaken on this land has yet to be determined, as the project development plans are still at a preliminary stage. Nevertheless, we believe the land tender provides an opportunity for the group to replenish its existing landbank in Singapore. Note that, the group has previously partnered City Developments for the South Beach mixed-development project, and Ho Bee for two condominium projects in Sentosa Cove - Seascape and Cape Royale (both completed in 2012 and 2013 respectively). We understand that the office and retail space at South Beach Tower are fully leased while the hotel component will commence operation in Jan 2017. Meanwhile, the group is developing The Trilinq Condominium @ Clementi as well (GDV: SGD 1.0bn, 755 units). Share Information Bloomberg Code IOIPG MK Stock Code 5249 Listing Main Market Share Cap (mn) 4411.2 Market Cap (RMmn) 10.322.2 Par Value 1.00 52-wk Hi/Lo (RM) 2.65/2.01 12-mth Avg Daily Vol ('000 shrs) 2,246.60 Estimated Free Float (%) 24.8 Beta 0.95 Major Shareholders (%) Vertical Capacity Sdn Bhd - 51.0% Employees Provident Fund - 9.1% Forecast Revision FY17 FY18 Forecast Revision (%) 0.0 0.0 Net profit (RMmn) 749.3 839.8 Consensus 708.4 799.0 TA's / Consensus (%) 105.8 105.1 Previous Rating Sell (Upgraded) Financial Indicators FY17 FY18 Net Debt/Equity (%) 12.0 11.8 CFPS (sen) 13.0 9.1 Price/CFPS (x) 0.2 0.3 ROE (%) 5.2 5.1 NTA/Share (RM) 3.7 3.8 Price/NTA (x) 0.6 0.6 Share Performance (%) Price Change IOIPG FBM KLCI 1 mth (7.5) (1.5) 3 mth (3.3) (3.0) 6 mth 2.2 0.4 12 mth 12.0 (1.5) (12-Mth) Share Price relative to the FBM KLCI Tender Price is 16% Above the Second Highest Bid The tender price translate into SGD1,689 psf per plot ratio. The winning bid was 16.4% higher than the second-highest bid of SGD2.21bn by Temasekowned Mapletree Investment and 34.5% above the lowest bid of SGD1.91bn put in by a consortium comprising OUE Limited, Guangzhou R&F Properties Co., Ltd. and Tang City Properties Pte Ltd. In addition, IOIPG s bid represents a 67.2% premium over the reserve price which was fixed at SGD1.54bn. For comparison purposes, Qatar Investment Authority acquired a 99-year leasehold Asia Square Tower 1, which is located adjacent to the land, for SGD3.4bn from BlackRock in June 2016. The acquisition price translates into SGD2,700psf. This implies that IOIPG s acquisition price of SGD1,689 psf would work out to 62% of potential selling price psf of NLA on a completed basis. Source: Bloomberg Page 1 of 6
While the acquisition price is slightly higher than the typical 40-60% land cost to GDV ratio, we deem the price to be fair given the strategic location of the land with easy accessibility, increasing the development s appeal to multinational corporation looking to set up or expand their businesses in Singapore. Our View According to the statistics from URA, overall office rentals across Singapore continue to slide under pressure due to oversupply and lackluster demand. Rental of office spaces has fallen by 1.1% in 3Q16, compared to the decline of 3.5% in the previously quarter see Figure 1. As at the end of 3rd quarter 2016, there was a total supply of about 879,000 sq m GFA of office space in the pipeline see Figure 2. Considering the development potential of the land, we are Neutral on the deal. Figure 1: Rental Index of Office Space in Central Region Figure 2: Pipeline Supply of Office Space Impact No change to our FY17-18 earnings forecasts at this juncture, pending further details on the development. Page 2 of 6
Recommendation Target price is maintained at RM2.52/share, based on unchanged 14x CY17 EPS. IOIPG s share price has retreated 12% from its recent high of RM2.65 amid shaky performance in global equities. Backed by a total potential return of 11.8%, we upgrade IOIPG to Hold from Sell previously. Appendix 1: Particular of Land Parcel at Central Boulevard Page 3 of 6
Appendix 2: Location Plan for Land Parcel at Central Boulevard Appendix 3: Aerial view of the white site at Central Boulevard, propertyguru.sg Page 4 of 6
Appendix 4: Tender Bids Received Page 5 of 6
Financial Statement Profit & Loss (RMm) Balance Sheet (RMm) YE June 30 2014 2015 2016 2017F 2018F YE June 30 2014 2015 2016 2017F 2018F Revenue 1,454.4 1,906.5 3,024.9 3,354.4 3,737.3 PPE 1047.3 1120.1 1122.3 1204.6 1236.3 EBITDA 712.4 866.9 1,117.5 1,356.5 1,441.0 Land Held for Development 3011.7 2894.1 4591.0 4791.0 4791.0 Dep. & amortisation (146.9) (177.6) (207.9) (209.5) (205.8) Investment Properties 2765.5 3388.2 4024.2 4032.5 3945.0 Fair Value Gains and EI (503.3) (316.6) (380.5) 0.0 0.0 Others 4099.1 4468.7 5124.2 5200.2 5343.7 Net finance cost (12.5) 50.7 57.1 21.0 15.7 Total Non Current Assets 10923.6 11871.1 14861.7 15228.3 15316.0 Share of associtates & JV 64.1 73.8 177.5 76.1 143.5 Trade Receivables 492.0 906.5 933.0 1595.0 1777.1 Reported PBT 1,120.4 1,130.3 1,524.7 1,244.1 1,394.3 Inventories 191.5 302.4 700.3 603.7 692.3 Normalised PBT 617.1 813.7 1,144.2 1,244.1 1,394.3 Cash 618.3 1909.6 2087.0 2886.7 3470.2 Taxation (216.7) (229.7) (424.4) (472.8) (529.9) Others 2499.6 3449.8 4228.3 5232.6 5821.7 MI (9.9) (20.2) (22.0) (24.7) (24.7) Current Assets 3801.4 6568.4 7948.6 10318.0 11761.2 Reported Net profit 889.9 890.7 1,080.0 749.3 839.8 Normalised PBT 386.6 574.1 699.5 749.3 839.8 Total assets 14725.1 18439.5 22810.3 25546.4 27077.2 Core EPS (sen) 11.9 15.2 15.8 16.9 19.0 GDPS (sen) 8.0 6.0 8.0 8.5 9.5 ST debt 750.0 560.4 464.5 764.5 1064.5 Div Yield (%) 3.4 2.6 3.4 3.6 4.1 Trade Payables 1040.9 1661.9 1576.7 3317.3 3804.0 EV/EBITDA (x) 12.7 11.2 11.2 9.1 8.6 Other current liabilities 25.1 18.0 39.2 39.2 39.2 Current Liabilities 1815.9 2240.3 2080.3 4121.0 4907.6 Cash Flow (RMm) Shareholders' funds 11202.5 13427.2 15885.1 16258.4 16678.0 YE June 30 2014 2015 2016F 2017F 2018F MI 98.7 111.0 130.8 152.8 177.4 PBT 1,120.4 1,130.3 1,524.7 1,244.1 1,394.3 LT borrowings 1307.2 2238.7 3797.6 4097.6 4397.6 Adjustments (1,931.9) (1,631.9) (1,222.9) (2,628.9) (1,816.1) Others LT liabilities 300.7 422.4 916.6 916.6 916.6 Dep. & amortisation 146.9 177.6 207.9 209.5 205.8 Total long term Liabilities 1607.9 2661.1 4714.2 5014.2 5314.2 Changes in WC 1,516.1 658.3 (689.3) 2,251.0 769.7 Operational cash flow 851.5 334.3 (179.6) 1,075.7 553.7 Total Equity and Liabilities 14725.1 18439.5 22810.3 25546.4 27077.2 Capex (1,779.4) (921.0) (2,082.3) (500.0) (150.0) Others 191.9 508.9 0.0 0.0 0.0 Investment cash flow (1,587.5) (412.2) (2,082.3) (500.0) (150.0) Ratio Debt raised/(repaid) 1,543.4 695.0 500.0 600.0 600.0 YE June 30 2014 2015f 2016F 2017F 2018F Equity raised(repaid) 0.0 1,024.8 1,425.0 0.0 0.0 EPS Growth (%) (27.0) 27.3 4.1 7.1 12.1 Dividend (15.0) (259.1) (353.9) (376.0) (420.2) PER (x) 19.6 15.4 14.8 13.8 12.3 Others (552.3) (117.1) 344.9 0.0 0.0 GDPS (sen) 8.0 6.0 8.0 8.5 9.5 Financial cash flow 976.1 1,343.6 1,916.0 224.0 179.8 Div Yield (%) 3.4 2.6 3.4 3.6 4.1 Net cash flow 240.1 1,265.7 (345.9) 799.7 583.4 Net Debt/ (Net cash) (RMm) 1439.0 889.4 2175.0 1975.3 1991.9 Net gearing (x) 0.1 0.1 0.1 0.1 0.1 Assumptions ROE (%) 5.3 5.6 5.1 5.2 5.1 YE June 30 2014 2015f 2016F 2017F 2018F ROA (%) 4.3 4.2 3.6 3.5 3.2 New Sales (RM mn) 2,000.0 1,770.0 2,200.0 2,394.8 2,699.7 NTA/share (RM) 3.5 3.6 3.6 3.7 3.8 Prop Dev Margins (%) 48.0 45.4 43.0 41.5 39.3 P/NTA (x) 0.7 0.7 0.6 0.6 0.6 Stock Recommendation Guideline BUY : Total return within the next 12 months exceeds required rate of return by 5%-point. HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point. SELL : Total return is lower than the required rate of return. Not Rated: The company is not under coverage. The report is for information only. Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. for TA SECURITIES HOLDINGS BERHAD(14948-M) (A Participating Organisation of Bursa Malaysia Securities Berhad) Kaladher Govindan Head of Research Page 6 of 6