IOI Corporation - Bumitama to list on 12 April, tentatively BUY

-  IOI Corporation Bhd’s associate, Bumitama Agri Pte Ltd, would be seeking a listing on the Singapore Stock Exchange. The tentative listing date is 12 April, Thursday. The book for the subscription of the IPO would close on 2 April, Monday. 

-  Upon the listing of Bumitama, IOI’s shareholding would be diluted from 36% to 30.4%. In 2007, IOI paid US$72mil (RM252mil) for the stake in Bumitama.  

-  As mentioned in our report dated 13 March 2012, we view the listing of IOI’s associate positively. 

-  Although there would not be a significant impact on IOI’s share price, the listing of Bumitama would allow IOI to place a value on its investment in the group. IOI would also be able to enjoy dividend payments from Bumitama should the latter return cash to shareholders.  

-  In terms of hectarage, Bumitama’s planted landbank of 119,162ha is roughly 10% smaller than First Resources’ 132,251ha. First Resources’ FFB yield of 22.2 tonnes/ha is also higher than Bumitama’s 16.3 tonnes/ha. First Resources is currently trading at FY12F PE of 13.1x based on Bloomberg consensus estimates.

-  Bumitama’s FFB yield is low due to the young age of its oil palm trees. Average age of its oil palm trees is five years old. Approximately 28% of the group’s (nucleus and plasma) trees are in the prime age of seven to 18 years old.   

-  Bumitama recorded a 39.8% to 45.2% increase in FFB production p.a. in FY10 and FY11. This was underpinned by aggressive new plantings carried out from FY04 to FY08. On average, Bumitama planted 12,341ha annually between FY04 and FY08. Bumitama plans to plant 13,000ha of land with oil palm annually going forward.   

-  Assuming a 10x-12x PE on FY12F earnings, Bumitama’s fair value would range between S$0.605/share and S$0.725/share. Based on a share price of S$0.725/share, Bumitama’s market capitalisation would be S$1.27bil. IOI’s 30.4% stake would be worth S$387mil. 

-  Bumitama contributes significantly to IOI’s earnings. IOI’s share of profit in Bumitama rose 83% from RM42.6mil in FY10 to RM78mil in FY11. In 1HFY12, IOI’s share of profit in Bumitama expanded 39.8% YoY to RM49.5mil.    

Source: AmeSecurities