News In a
Bursa announcement, IOICORP announced that it had acquired a 50% stake in Prime
Joy Investments Limited (“Prime Joy”) for around USD9.3m from Teijan Management
(Teijan). The acquisition also required the full settlement of shareholders’
advances owing by Prime Joy to Teijanamounting to around US$30.2m. Effectively,
the total cash outlay from IOICORP is expected to be USD39.5m.
We understand that
Prime Joy owns 7.7 acres of land located in Xiamen, China. Hence, this transaction
effectively priced the land at USD235/sq ft.
The rationale for the
acquisition was to allow IOICORP better control and management of the operation
in Xiamen as well as to facilitate a timelier and efficient decision-making
process.
Comments We are
neutral on the news as the earnings and balance sheet impact is likely to be
minimal for FY13E-FY14E. As highlighted in our previous report dated 30 Oct
2012 on IOICORP’s China property venture, any significant earnings
contributions from the Xiamen project will likely take place only later (we
estimate more than two years from now).
Recall that in
end-Oct, local media reported that IOICORP will begin the construction of its
first independent property development in Xiamen, China in 2013 with a gross
development value (GDV) estimated at RM2.0b.
Outlook We believe FY13E earnings should decline 5%
YoY due to our lower average CPO price estimate of RM2850 (-2% YoY) with
limited FFB growth prospect. In FY12, IOICORP’s plantation division suffered
its fourth consecutive year of FFB production to 3.19m mt.
Forecast No changes to our FY13E-FY14E earnings of RM1.74b-RM1.76b.
Rating Maintain UNDERPERFORM
Low CPO prices and
matured oil palm trees should keep IOICORP’s plantation division earnings unexciting
for FY13E. In FY12, its plantation division earnings contribution remained
significant at 61% of the group’s EBIT.
Valuation Maintaining the TP of RM4.40 based on FY13E
PER of 16.2x (which is its 3-year average PER).
Risks Better than expected CPO prices.
Better than expected
margin for the property and downstream divisions.
Source: Kenanga
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