IOICorp ... Apr13

It was reported that IOI Corp was planning an initial public offering (IPO) of its property arm in the fourth quarter of 2013, speculating the total value of the listing to be in the region of RM10bil.

This would be a huge improvement in size, considering that it was only in 2009 that IOI Corp had bought back its then-listed property arm IOI Properties Bhd for a mere RM310mil in cash and shares, valuing the unit at about RM1.3bil.

It would be positive if the group lists its property arm, as it would allow it to unlock value and for investors to better appreciate its property division.

At the moment (April 2013), the property division was “hidden” and that there wasn't much visibility in terms of its value, future plans and launches in the pipeline. If it were to be listed on its own, then IOI Property would eventually be able to find its own value.

Back in 2009, IOI Corp had taken IOI Properties private as the company was undervalued, trading at 8.4 times versus IOI Corp, which was trading at 15 times back then.

As at IOI Corp's financial year ended June 30, 2012, the total asset value of the property development and investment segments stood at RM7.7bil, contributing a pre-tax profit of RM538mil or 20% of IOI Corp's total pre-tax profit.

This raises the issue of whether IOI Corp's property division's IPO could be priced at more attractive valuations than IOI Corp. IOI Corp was currently (15 April 2013) trading at a forward price earnings of 20.7 times on 2013 earnings.

Market observers opine that IOI Property was currently (15 April 2013) 100% owned by IOI Corp, there was room for value creation. If it were to go for a separate listing, this would mean that the parent company sells down its stake and gets back some value from its assets. It could use that money to expand its business or give it back to shareholders.

A separate property listing would also reduce the risk for the plantations side. This was because at present (April2013), funds from IOI Corp were being used to buy and develop land for its property segment.

Meanwhile the Lee family of IOI Corp has been buying back shares on the open market ahead of a corporate exercise reportedly to relist the group’s property arm.

Under this option, shares in the property arm will be distributed to IOI Corp’s shareholders, which will result in the unit separating from the group.

The family, led by IOI Corp MD and CEO Tan Sri Lee Shin Cheng had increased its stake in the company from 43.33% to 45.78% as at April 2013.

If it is distribution in specie, IOI Property will no longer be a subsidiary of IOI Corp but both companies will have common shareholders and be independently listed.

Both listed entities will then be valued purely on their aggressive plantation and property business.

IOI Corp could trade at a better PER if it became a pure plantation company following the demerger of its property business.

As for the property arm, the relisting exercise could value the property arm at up to rm10 million.

As earnings from its overseas property ventures start to come in IOI Corp may look again at the option of relisting its property arm, which will enable investors to channel their investments in a more focused manner.

In the last three financial years revenue from the property division has been an average of rm950 million.

The company will also offer investors more exposure to the Singapore real estate market instead of being a mainly Malaysia play.