PETALING JAYA: The earnings potential from IOI Properties Group Bhd’s (IOI Prop) ongoing project at IOI Resort City will be more than sufficient to offset the dilutive impact from its acquisition of almost 400 acres from chairman Tan Sri Lee Shin Cheng.
The issuance of new IOI Prop shares for the acquisition, comprising about 644.78 million shares, will see the company’s share base being enlarged by 17% from 3.7 billion shares to 4.4 billion shares. This translated into a dilution of 14% of earnings per share (EPS) for the financial year ending June 30, 2016 and 2017, said BIMB Securities Research.
Affin Hwang Capital Research added that while the issuance of new shares would dilute IOI Prop’s future earnings, the land acquisitions would enhance it.
However, Kenanga Research said while the dilution impact to EPS was significant in the near term, contributions from the development would only be meaningful in 1½ to two years.
Meanwhile, Hong Leong Investment Bank (HLIB) Research is neutral on the deal, as EPS dilution is offset by fair pricing and the majority of the purchase consideration being financed by the issuance of new shares. This also showed the commitment of the major shareholder participating in the future growth of IOP Prop, it added. Lee’s indirect stake will increase from 51% to 59% post-acquisition.
Affin added that there was “comfort” that the vendors would receive a majority of the payment in shares, which effectively worked out to 26% of the proposed consideration.
IOI Prop’s proposed acquisition of Mayang Development Sdn Bhd and Nusa Properties Sdn Bhd from Lee for RM1.58bil is expected to provide it with the avenue to start development on the second phase of IOI City Mall.
Analysts said the acquisition capitalised on the success of IOI City Mall, which had achieved 92% in occupancy rate within a year of its initial opening.
“We believe this is a synergy acquisition as this will expand IOI Prop’s landbank in IOI Resort City from the existing 50 acres to 450 acres and complement the existing development,” said HLIB Research.
The target companies own 399.7 acres within IOI Prop’s ongoing IOI City Resort project fronting Putrajaya and next to the South Klang Valley Expressway.
Once the acquisitions are completed, IOI Prop’s landbank in IOI Resort City will stand at 449.7 acres from its current 50 acres. The additional landbank is expected to generate an indicative gross development value of RM20bil.
Year-to-date, about 24% of the combined landbank has obtained development order. The total development of IOI Resort City will span over 780 acres after the acquisitions, comprising of hotels, a golf course, retail malls, commercial and residential properties.
Of the acquisition value totalling RM1.58bil, 90% will be satisfied via the issuance of IOI Prop’s new shares at an indicative issue price of RM2.21, while the remaining RM158mil will be satisfied via a cash settlement. The issue price translated into a premium of 4.2% based on the latest closing price of RM2.12, said BIMB.
