IOI’s new income stream; 2nd project in Xiamen to start contributing in …

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PETALING JAYA: Earnings contribution from IOI Corp Bhd‘s first independent property development in Xiamen, China, is only likely to kick in about two years from now.

The project, which is expected to begin next year, is estimated to have a gross development value of RM2bil.

Kenanga Research analyst Lim Seong Chun, who has a “neutral” rating on the project, said China’s property guidelines only allowed companies to recognise earnings at a latter stage unlike Malaysia where it was booked in progressively.

“The project should contribute positively to IOI Corp’s earnings from financial year 2015 onwards,” he told StarBiz.

RHB Research, meanwhile, kept its “underperform” rating on the stock unchanged pending further clarity on details like land size and the type of land for the proposed development.

“We are unable to determine if the pricing of the land is fair but we believe IOI Corp would not venture independently into another property project in the same area in China without first having an indication of demand and the attractiveness of returns,” it said in a report.

The firm anticipates further headwinds from IOI Corp’s downstream business, given the Indonesian export tax structure, while cashflow requirements for its property developments in Singapore are expected to be quite demanding, going forward.

“We lower our sum-of-parts (SOP)-based fair value to RM4.95 (from RM5), taking into account the land cost of RM586.7mil,” RHB Research said.

It was reported that IOI Corp had recently acquired land in Xiamen for 1.2 billion yuan (RM586.7mil) that will be converted into a mixed-development over the next 10 years.

IOI Corp executive chairman Tan Sri Lee Shin Cheng was quoted as saying after the company’s AGM on Monday that “the first phase will be a four-million-sq-ft development of a shopping mall, hotel, offices and residential units and is expected to be completed in two years”.

The company is expected to hold the mall, hotel and offices for long-term investments while the residences and offices will be sold off.

Lee was also quoted as saying that the company had been studying the China market in the past three years and was of the view that the project would be a viable source of revenue for the group.

The project is IOI Corp’s second in Xiamen after it acquired a 7.7-acre land costing around 314 million yuan in 2010. It will be developed into a high-rise mixed development.

This project is a joint venture with a Taiwanese company and is also expected to be completed in the next two years, Lee was quoted as saying.

IOI Corp shares closed 3 sen higher at RM5.05 yesterday with 1.26 million shares traded.

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