KUALA LUMPUR (Nov 11): RHB Research has maintained its Buy rating on IOI Property Group Holdings Bhd (IOIPG) at RM2.70 with a lower target price of RM3.10 (from RM3.38) and said it was neutral on IOIPG’s equity fund-raising exercise, as the dilution impact on RNAV and earnings could be mitigated once new landbank was secured and/or IOI City Mall Putrajaya was revalued.
In a note Tuesday, the research house said while the market may be surprised with the fund-raising exercise, given that the company was only listed in January this year, with its current net gearing of only 13%, management indicates that no cash was raised during the IPO, as shares were distributed as dividend-in-specie to IOI Corp’s (IOI MK, NEUTRAL, TP: MYR4.50) shareholders.
Hence, it said the financing was needed mainly to support the construction of infrastructure and development of investment properties (RM500 million), such as IOI City Mall Putrajaya, and the offices and hotels in IOI Resort City.
Meanwhile, it said RM325 million was allocated for working capital, mainly for the new township projects such as Bandar Puteri Bangi and Bandar Puteri Warisan.
RHB Research said the remaining RM200 million would be the company’s war chest for future investment opportunities, such as landbanking exercise.
“Equity funding is generally a preferred choice, especially in a rising interest rate environment.
“Maintain Buy and lower target price for now on the immediate impact to RM3.10 (14.8% upside). 50% of the proceeds will be used to fund the development of investment properties, which should enhance the assets’ future value,” it said.