IOI CORPORATION,buys Menara Citibank, says news daily

22 August 2008
HOLD
RM4.84
Target Price: RM4.30


YE to June FY07 FY08 FY09F FY10F
FD EPS (sen) 22.7 35.0 34.0 34.7
FD PE (x) 21.3 13.8 14.2 13.9



The Edge Financial Daily reported that IOI Corporation Bhd (IOI) has succeeded in its bid to purchase Menara Citibank from Citigroup-based Inverfin Sdn Bhd. Sources said IOI would buy the building for RM800mil after outbidding two others. The report also said that the building would likely fetch a selling price of between RM1,000/sq ft to RM1,200/sq ft.

If the news report is true, then we believe that the building would most likely be parked under IOI Properties. However, financing would be an issue as IOI Properties has net borrowings of RM1.3bil as at end-June 2008. n IOI Properties recently carried out a 1-for-4 rights issue to finance the acquisition of its Sentosa Cove landbank. A large proportion of the rights issue were subscribed by parent company, IOI Corporation.

Currently, the bulk of IOI Properties’ investment properties consist mainly of commercial buildings such as the IOI Business Park in Puchong, IOI Malls in Puchong and Kulai, Plaza Mayang in Petaling Jaya and IOI Plaza in Singapore. Menara Citibank would mark IOI Properties’ first major foray into the office building segment.

We believe that the reported selling price of RM1,000/sq ft to RM1,200/sq ft is reasonable as the last market transacted price was RM1,120/sq ft for Glomac Tower. Also, if YNH Property Bhd’s S&P with Kuwait Finance House for Menara YNH is successful, then this would fetch a selling price of RM1,230/sq ft. Menara Citibank is reported to be 99% occupied with average occupancy rates in excess of 90% since 2002.

We are neutral on this development as although Menara Citibank would improve IOI Properties’ rental income, financing of the acquisition would be an issue. We maintain a HOLD on IOI Corporation and a SELL on IOI Properties.