News According to
The Edge Financial Daily, IOICORP will begin construction of its first
independent property development in Xiamen, China next year. Gross development
value (GDV) estimate of the project is RM2.0b.
The report quoted Tan Sri Datuk Lee Shin Cheng (IOICORP CEO)
saying that the Group will convert its recently purchased bought land in Xiamen
(for RM587m) to mix-development project over the next ten years. First phase of
the project will be a 4m sqf development of a shopping mall, hotel, offices,
and residential units and is expected to be completed in two years’ time.
Comments Neutral on the news. Additionally,
significant earnings contribution will likely take place later (we estimate more
than 2 years from now).
It was also mentioned in the news that IOICORP will sell
residential components but keep the rest for investment. However, breakdown of
GDV were not provided and we are seeking further clarity on the matter.
Although the project should
contribute positively to IOICORP earnings from FY15E onwards, the
Group’s move to expand its property division instead of plantation division may
not bode well for investors who invest in IOICORP as proxy to plantation
sector.
Outlook We
believe core earnings growth for FY13E-FY14E will be generally unexciting at
12%-7% due to its maturing tree.
Its plantation division suffered a 4th consecutive year of FFB yield decline to
23.18mt/ha in FY12. However, the group’s strong cash flow should enable IOICORP
to maintain its stable dividend of > 15.0 sen.
Forecast No
change to our FY13E-FY14E earnings of RM2.05bRM2.11b pending details from the
management.
Rating Maintain
MARKET PERFORM
Maturing oil palm trees and a slowdown in the Singapore
property market may keep the earnings upside limited.
Valuation Maintaining TP of RM5.20 based on FY13E PER
of 16.2x (which is a 3-year average PER).
Risks A sustained
drop in CPO prices.
Worse than expected margin for the property and downstream
divisions.
Source: Kenanga
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