08 December 2014

RHB Research downgrades IOI Property to Neutral

  08 December 2014

KUALA LUMPUR: RHB Research is downgrading IOI Properties Group to Neutral from Buy, despite being upbeat on the company’s proposed acquisition of a 37% stake in Taipei 101, saying the deal would take time to digest and adding that it had turned bearish on Malaysia’s property sector.

The target price has been revised down to RM2.63 from RM3.10, which still presents a premium of 24 sen for the stock which last closed trading at RM2.39.

According to the research house, acquisition of a stake in Taiwan’s landmark building should lift IOI Property’s earnings slightly while bestowing upon it some prestige.

The acquisition, which will cost RM2.74bil or RM3,124 per square foot, is targeted to be completed by the first quarter of 2015, and is not subject to the approval of IOI Property’s shareholders.

“The shopping mall is fully tenanted, while the occupancy rate for office is about 96%. The properties are occupied with quality tenants, such as Taiwan Stock Exchange, multinational financial institutions and major accounting firms. Tenancy risk is low, as the lease has a tenure of 70 + 20 years,” RHB Research said.

“Given the average rental of NT$420 psf and NT$77 psf for the retail and office space, this translates into a gross yield of above 5%. This seems attractive compared with a market average yield of around 2.5-3.0% for commercial properties in Taipei, based on our findings,” it added.

RHB Research said it was raising FY16-17 forecasts by 6% and 2% to reflect the impact of the acquisition.

However, it said it was turning bearish on the property sector next year as negative sentiment kicks in after the recent fall in equity and commodity prices, and hence the potential downside in GDP growth. As such it was lowering its TP to RM2.63, based on a larger discount to RNAV (revalued net asset valuation) of 40% (from 30%).



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