News IOICORP has entered into documentation to establish
a Euro Medium Term Note Programme (EMTN) with an initial programme size of US$1.5b
or RM4.5b*.
Purpose of the EMTN
is to fund IOICORP’s capex, investment or acquisitions, working capital and for
repayment of existing debts.
Comments IOICORP’s net gearing could balloon to 54%-58%
(80%-84% gross gearing) from 21% at 31/12/11, assuming drawdown of the
RM4.0bRM4.5b. If so, IOICORP’s net gearing will be the highest amongst big cap
planters, exceeding SIME”s 21% and KLK’s net cash position.
Out of the possible
maximum total RM4.5b loan raised, we believe that about RM0.8b will be used to
finance the company’s purchase of 6.03ac land in Clementi, Singapore. Another
RM491m could be used to repay its SGD200m term loan due in May 2013.
Hence, we expect the
balance of RM3.2b could be used to expand its business in either plantation or
property.
Positive if the EMTN
proceeds are used to expand IOICORP’s plantation land.
Negative if the EMTN
proceeds are used to invest deeper in Singapore or the Malaysian property market
due to their unexciting growth prospect.
Outlook Limited
FFB growth prospect, compressed margin in downstream division and unexciting
outlook on the Singapore property market could limit the share price upside.
Forecast We are
maintaining our FY12E-FY13E earnings of RM2.05b-RM2.12b, pending the actual
amount of drawdown from the EMTN loan.
Rating MAINTAIN MARKET PERFORM
Unexciting FY12-13E
earnings growth of 6%-3%, unlike its growth peers which are offering >15% YoY
growth over the next 2 years.
Valuation Downgrading our TP to RM5.20 (from RM5.60) based
on lower Fwd. PER of 16.2x (previously 17.5x) on unchanged FY12E EPS of 32.0
sen.
We have applied
3-year average Fwd. PER of 16.2x (from 5-year average Fwd. PER of 17.5x). This
is to reflect the significant de-rating on IOICORP after 2009 as it continues
to trail behind others in its plantation landbank expansion.
Risks A
sustained drop in CPO prices.
Lower than expected
margin from the downstream or property divisions.
Source: Kenanga
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