6 July 2010

PP 7767/09/2010(025354)
Malaysia Corporate Highlights
RHB Research
Institute Sdn Bhd
` A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
6 July 2010
MARKET DATELINE

IOI Corporation Share Price

Fair Value
:
:
RM4.98
RM6.65
Disposes Of Land For RM53.5m Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (IOICORP; Code: 1961) Bloomberg: IOI MK

Net Net
FYE Turnover Profit ^ EPS ^ Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
June (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 14,600.5 1,897.7 32.1 (0.1) 15.5 - 13.9 3.5 22.7 37.1 1.6
2010f 15,052.1 1,711.4 26.8 (16.3) 18.6 28.0 16.2 3.4 35.7 35.2 2.4
2011f 16,720.8 2,110.8 33.1 23.3 15.1 32.0 13.3 3.0 19.9 30.8 2.7
2012f 18,772.9 2,231.2 35.0 5.7 14.2 34.0 12.6 2.7 18.8 28.9 3.0
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates
^ Normalised

♦ Disposes of land for RM53.5m. IOIC’s 99.7%-owned subsidiary, IOI Issued Cap (‘m shrs) –ex 6,381.4
Properties has disposed of a company, Paduwan Development Sdn Bhd treasury shrs
(PDSB) for RM53.5m (inclusive of settlement of IOIP's loan) to Starwatt Market Cap (RMm) - basic 31,779.2
Engineering Sdn Bhd. PDSB's principal asset is an agricultural land planted Daily Trading Vol (m shs) 12.2
with oil palm measuring 535.45 acres (217 hectares) situated at Mukim of 52wk Price Range (RM) 4.37-5.72
Krubong, District of Melaka Tengah, State of Melaka. Major Shareholders: (%)
Tan Sri Lee Shin Cheng 40.1
♦ Seemingly high price for plantation land. Based strictly on the amount
EPF 7.2
of cash to be received and the size of the land, this works out to be a
First State Investments 7.0
whopping RM246,544/ha (or RM99,916/acre), which is much higher than
any other transaction we have seen lately for plantation land in Peninsular FYE Jun FY10 FY11 FY12
Malaysia (ranging between RM40-50,000/ha). However, we believe the EPS chg (%) - - -

pricing for the land was more likely to be based on property development Var to Cons (%) (4.2) 3.4 2.8

prices. Nevertheless, based on our research, the pricing for this land is still PE Band Chart
much higher than the closest property transaction recorded in the Melaka
Tengah area in May 08, which was transacted for RM98,853/ha.
♦ Positive on transaction. We believe IOIC will recognise a gain on sale for PER = 22x
PER = 17x
this land, given that in IOIP’s latest published annual report (FY08), this PER = 12x
piece of land had a NBV of RM18.2m. If the land has not been revalued PER = 7x

since then, IOIC is likely to recognise a gain on sale of RM35.3m, which

would raise our FY06/11 earnings by 1-2%. We believe the sale would help
IOIC to rationalise any landbank that is not close by or synergistic with its
other plantation landbank, while unlocking some value from it. We note Relative Performance To FBM KLCI
that IOIP still has another two pieces of plantation land in Melaka,
measuring 435ha and 109ha, although the location of the land is not in the
same area. FBM KLCI

♦ Risks. 1) A reversal in crude oil price trend resulting in reversal of CPO

and other vegetable oils price trend; 2) Weather abnormalities resulting in
IOI Corporation
an over- or under-supply of vegetable oils; 3) Change in emphasis on
implementing global biofuel and trans-fat policies; and 4) A slow global
economic recovery causing lower demand for CPO.
♦ Forecasts. No change to our forecasts, as we estimate that the disposal of
this landbank (excluding the gain on sale) would impact earnings by
<+1% p.a..
♦ Recommendation. We maintain our SOP-based target price of RM6.65
and our Outperform recommendation on the stock. Hoe Lee Leng
(603) 92802184
Please read important disclosures at the end of this report.
hoe.lee.leng@rhb.com.my

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Table 2. Earnings Forecasts Table 3. Forecast Assumptions

FYE Jun (RMm) FY09a FY10F FY11F FY12F FYE Jun FY10F FY11F FY12F

Turnover 14,600.5 15,052.1 16,720.8 18,772.9 CPO Selling Price (RM/t) 2,400 2,600 2,500
Turnover growth (%) (0.4) 3.1 11.1 12.3 PK Selling Price (RM/t) 1,600 1,700 1,600
FFB production Growth (%) (8.0) 6.1 3.3
Operating Profit 2,376.4 2,478.6 2,909.4 3,079.2
Op Profit Margin (%) 16.3 16.5 17.4 16.4

EBITDA 2,594.1 2,728.6 3,179.3 3,368.9

EBITDA margin (%) 17.8 18.1 19.0 17.9

Depreciation (217.8) (250.1) (269.9) (289.7)

Associates 9.9 63.2 142.6 142.9
Net interest costs (170.5) (150.8) (147.4) (152.1)
Exceptional items (914.2) 0.0 0.0 0.0

Pretax Profit 1,550.1 2,391.0 2,904.6 3,070.0

Tax (486.9) (637.1) (750.3) (795.1)
PAT 1,063.2 1,753.8 2,154.3 2,274.9
Minorities (79.7) (42.4) (43.5) (43.7)
Net Profit 983.5 1,711.4 2,110.8 2,231.2
Net Profit (ex-EI) 1,897.7 1,711.4 2,110.8 2,231.2
Source: Company data, RHBRI estimates

Table 4. SOP Calculation

FV
Valuation basis
(RMm)
Plantation earnings 16.0x CY11 earnings 26,855.9
Manufacturing earnings 10.5x CY11 earnings 7,580.5
Property investment and devt 12.0x CY11 earnings 9,102.5
earnings

Less: Net debt (3QFY10) (1,259.8)

SOP (RMm) 42,279.1

SOP/share (RM) 6.63

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Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over
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