Analysts mixed on IOI Properties’ gearing impact

• HLIB said that while the mall is currently loss making, it sees value in this acquisition. It said that the mall is located strategically with direct connection to the Surian MRT station, and is in proximity to several townships including Kota Damansara, Sunway Damansara, Mutiara Damansara, as well as the upcoming development of Kwasa Damansara.

KUALA LUMPUR (July 24): Analysts have expressed mixed views on IOI Properties Group Bhd’s (KL:IOIPG) acquisition of Tropicana Gardens Mall and its impact on the group’s gearing level.

In separate notes on Wednesday, MIDF Research and Hong Leong Investment Bank (HLIB) both maintained their earnings forecast for the developer.

MIDF maintained its “neutral” rating on IOI Properties at RM2.17 with a lower target price (TP) of RM2.25 (from RM2.40). The research house said that it sees a higher net gearing for IOI Properties, post the slew of asset acquisitions that is expected to expand the group’s investment assets portfolio, ahead of the potential listing of its investment properties.

“Hence, we are neutral on the acquisitions. We estimate net gearing to increase to 0.78x, from 0.74x as of 3QFY2024.

“Meanwhile, we revise our TP for IOI Properties to RM2.25 from RM2.40, as we widened our RNAV (realisable net asset value) discount to 56% from 53%, in view of the high net gearing.

“We maintain our neutral call on IOIPG, as we see limited catalysts to IOIPG in the near-term,” it said.

HLIB, on the other hand, maintained its “buy” call on IOI Properties with an unchanged TP of RM3.30, and said the acquisition price of RM680 million is below the book value of the mall of RM944 million, representing a discount of 28%.

The research house said the group was able to secure the purchase at a discount due to its en-bloc purchase of several large assets from Tropicana Corp Bhd (KL:TROP).

HLIB said that while the mall is currently loss making, it sees value in this acquisition.

It said that the mall is located strategically with direct connection to the Surian MRT station, and is in proximity to several townships including Kota Damansara, Sunway Damansara, Mutiara Damansara, as well as the upcoming development of Kwasa Damansara.

HLIB said after accounting for the Shenton House acquisition (RM3.53 billion), Tropicana Mall (RM680 million) and Langkawi land (RM90.1 million), the group’s net gearing is anticipated to increase to 92.2%, from 73.3% in 3QFY2024.

“While the net gearing seems elevated, we highlight that the group is likely to recognise substantial revaluation gain from IOI Central Boulevard (IOICB) in its upcoming 4QFY2024 results, which would lower the group’s net gearing.

“IOIPG is now at the cusp of unleashing significant value from its jewel assets in Singapore, namely IOI Central Boulevard and Marina View Residences.

“The stock remains grossly undervalued, especially when considering that its property investment and hotel assets are worth more than twice its market capitalisation, without even considering its landbank value yet,” HLIB  said.

At 11am on Wednesday, IOI Properties shed 0.92% or two sen to RM2.15, with 1.45 million shares traded.

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