Brokers Digest: Local Equities - IOI Properties Group Bhd, KLCCP Stapled Group Bhd, YTL Power International Bhd, PGF Capital Bhd

TheEdge Mon, Feb 12, 2024 02:30pm - 2 weeks View Original

This article first appeared in Capital, The Edge Malaysia Weekly on February 5, 2024 - February 11, 2024

IOI Properties Group Bhd

Target price: RM2.95 BUY

HONG LEONG INVESTMENT BANK RESEARCH (JAN 29): IOIPG is acquiring Courtyard by Marriott Penang Hotel (Courtyard) from Tropicana Corp Bhd for RM165 million, following its earlier acquisition of W Hotel in KL. Both hotels were acquired at attractive prices, with W Hotel acquired below its original development cost and Courtyard acquired below its book value.

With the economic recovery and its new property investment assets, including IOI City Mall Phase 2 (IOI-2) and IOI Central Boulevard (IOICB), IOIPG is well-positioned for more aggressive expansion ahead. We maintain our forecasts and “buy” call with a higher target price of RM2.95 (from RM2.50) based on a 50% discount to our estimated RNAV of RM5.91.

Concerns persist regarding the group’s expansion amid an elevated net gearing level, currently standing at 69.9% as of 1QFY24. However, we believe investors should not be overly alarmed for several reasons. Firstly, the group is expected to recognise substantial revaluation gains upon the completion of IOICB, potentially ranging from RM5 billion to RM8 billion. This boost to the group’s asset base is anticipated to lower its net gearing to a palatable level of approximately 51.4% to 57.1%. Operationally, IOICB is also forecast to generate robust cash flow, with an annual revenue exceeding RM600 million, which should help service debt repayment.

Additionally, a significant portion (81%) of the group’s debt is denominated in Singapore dollars, mostly with floating rates. Given the expected easing of interest rates in Singapore, aligning with the rate cuts in the US, the group’s interest repayments are anticipated to ease accordingly. Finally, the group had demonstrated resilience in navigating challenges in the Covid-19 years of 2020 and 2021, including lockdowns and lower footfall impacting its retail malls and hotels, undertaking construction of major projects, including IOI-2, IOICB and several hotels as well as the property development setbacks in China during its property crisis.

Despite these challenges, the group recorded commendable profits in FY21 and FY22, while also maintaining dividend payouts for shareholders. With the current economy recovering and strengthened cash flow from new property investments … We believe that the group is now better-positioned and ready to pursue more aggressive expansion for its next phase of growth. W Hotel should start contributing to the group’s earnings from 4QFY24 onwards, while Courtyard should start contributing from FY25 onwards.

KLCCP Stapled Group Bhd

Target price: RM7.73 OUTPERFORM

KENANGA RESEARCH (JAN 29): KLCCP is acquiring the remaining 40% stake in Suria KLCC Sdn Bhd not owned by it for RM1.95 billion, putting its overall value at RM4.88 billion. This would boost its overall bottom line contribution from the retail segment, which presently makes up c.40% of the group’s earnings. Assuming completion by 2QCY24, we raise our FY24F earnings and distribution payments by 7%. Thanks to the higher payout, we raise our target price from RM7.18 on an unchanged 5.5% target yield and upgrade our call from “market perform”.

[The price tag] seems to be below the implicit market value of RM5.63 billion as ascertained by an independent evaluation, suggesting that the other shareholders could be eager to liquidate their positions. We are positive with the deal as it could support the desired yield of 6%-7% at group level. Based on FY22 retail segment’s pre-tax profit of c.RM380 million, this translates into a yield of c.7% from Suria KLCC alone based on complete ownership.

We opine this move could still drastically reduce KLCCP’s minority interest payments as hotel operations have only recently broken even in 3QFY23.

YTL Power International Bhd

Target price: RM4.69 BUY

RHB RESEARCH (JAN 29): We stay positive on YTLP given its resilient earnings from PowerSeraya and gradual improvements from Wessex Water. As for the recent Nvidia artificial intelligence-data centre (AI-DC) collaboration, our preliminary estimates suggest a full ramp-up in the 100MW AI-DC could generate average gross annual net earnings of US$130 million (60% attributable to YTL Communications).

PowerSeraya is still the powerhouse. As retail market prices (70% of total output) are still holding up quite well, we believe the earnings moderation may not be as significant as we initially anticipated, given that locked-in gas prices should still deliver decent margins. This is despite the Uniform Singapore Energy Price — the reference for pool prices — having retraced to S$131/MWh in December 2023. We estimate that c.15% of the total output generated is sold in the pool market, as the remaining 15% is still under vesting contracts that generally offer relatively fixed margins. As such, we lift our PowerSeraya earnings contributions.

We increase our FY24F-FY26F earnings by 14% to 56%, mainly on higher PowerSeraya contributions. Our target price is also lifted from RM2.95 with the incorporation of higher PowerSeraya and AI-DC valuations (12 times enterprise value/Ebitda).

PGF Capital Bhd

Target price: RM2.76 BUY

TA SECURITIES (JAN 29): We initiate coverage on PGF, which plays a crucial role in [reducing] global warming with its low-cost, non-combustible and effective building insulation solution, that is, glass wool. Also, it is one of the largest landowners in Tanjong Malim, possessing 1,311 acres of leasehold land adjacent to Proton City. Based on the market price of RM45 psf, the value of the land is three times greater than PGF’s market capitalisation. We believe this would make PGF a potential privatisation or M&A target in the future.

PGF has sold out its FY24 glass wool capacity and has resorted to Thailand imports to meet the rising demand. There is business opportunity in abundance from having a huge land bank beside Proton City. PGF will focus on property development, durian plantations and ecotourism for cash flow and recurring income purposes.

Its FY24, FY25 and FY26 profits are expected to be RM10.3 million, RM41.9 million and RM42.6 million respectively based on the assumptions that: (i) the production of glass wool will grow to 21,200, 23,800 and 27,600 tonnes for FY24, FY25 and FY26 respectively, with utilisation rates to be between 85% and 95%; (ii) the recognition of land sales gains of RM21 million in FY25; and (iii) property sales of RM180 million in FY26.


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IOIPG 2.180
KLCC 7.550
PGF 1.680
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