IOICORP - MARKET PERFORM - 22 June 2012

News  IOICORP has priced its US$600m 4.375% Guaranteed Senior Notes due 2022 at a price of 99.288% to yield 4.464%. The Notes are USD denominated and will bear a fixed interest of 4.375% per annum, with semi-annual interest payment.

The transaction was nine times oversubscribed with an orderbook of US$5.2b.

Comments  IOICORP’s net gearing will increase to 42% from 26% based on the balance sheet as at 31/3/12. Effectively, IOICORP’s net gearing will be the highest among the big cap planters, exceeding SIME’s 22% and KLK’s 8%.

Out of the total RM1.88b  raised, we believe that about RM800m will be used to finance the company’s purchase of the 6.03ac land in Clementi, Singapore. Another RM500m could be used to repay its SGD200m term loan due in May 2013.

We expect the balance of RM580m could be used to expand its business in either plantation or property. We prefer if the balance is used for buying more plantation land, rather than for property landbanking in Singapore because we observed IOICORP has been de-rated since their foray into Singapore’s property market. 

Outlook  Limited FFB growth prospect, compressed margin in the downstream division and the unexciting outlook of Singapore’s property market could limit the share price upside.

   

Forecast FY13E interest cost should increase by about RM83m or less than 5% of its FY13E total earnings. But for now, we maintain our FY12E-FY13E core net profits of RM2.05b-RM2.12b, pending further details from management on fund utilisation.

Rating   Maintain MARKET PERFORM

The valuation of 15.9x FY13E PER is fair at the current juncture given its unexciting FY12-13E core earnings growth of 6%-3%.

Valuation  Maintaining our Target Price of RM5.35 based on Fwd. PER of 16.2x on an unchanged FY13E EPS of 33.1 sen.

Risks  A sustained drop in CPO prices.

Lower than expected margin from the downstream or property divisions.

Source: Kenanga