IOI PROPERTIES GROUP BHD

IOI Properties Group Bhd (IOI Prop) announced that it has terminated a memorandum of agreement (MoA) with Hongkong Land International Holdings Ltd (HKLI) in relation to a proposed joint venture, due to the non-fulfilment of certain conditions precedent.

IOI Prop entered into the MoA with HKLI in June 2017 to set up a joint venture (JV) to develop and manage the prime Central Boulevard site in Singapore.

MIDF Research is negatively surprised by the development as it had previously anticipated the proposed JV to alleviate burden on IOI Prop’s balance sheet.

IOI Prop has successfully bid for 1.09 hectares land in Central Boulevard for a tender consideration of S$2.57bil in November 2016 while HKLI is expected to take up 33% stake or equivalent to S$940mil in the project.

With the call-off of the proposed JV, IOI Prop would have to raise funds for the project.

With the estimated construction cost of around S$700mil to S$800mil, MIDF Research estimates net gearing of IOI Prop to potentially go up to 0.68 times from 0.6 times as of the second quarter of FY18.

“We make no changes to our earnings forecast as the termination of JV with Hongkong Land is not expected to impact the earnings of IOI Prop.

“The potential rising cost of borrowings is likely to be capitalised.

“We revised our target price for IOI Prop to RM1.89 from RM2.09 as we increase our discount to the revalued net asset value (RNAV) to 53% from 48% due to concern over rising net gearing.

“We maintain our neutral call on IOI Prop for its tepid earnings outlook and expected rising net gearing,” said MIDF Research.