Revisiting acquisition of Shenton House 'best available option' for IOI Properties — HLIB
KUALA LUMPUR (Nov 8): Hong Leong Investment Bank (HLIB) proposed that revisiting the Shenton House acquisition could present a prime opportunity for IOI Properties Group Bhd (KL:IOIPG), given the favourable market conditions.
The house said this after IOI Properties announced the withdrawal of a proposed extraordinary general meeting (EGM) resolution by chief executive officer Lee Yeow Seng to address a conflict of interest related to the Shenton House project.
"Lee decided to withdraw the resolution after feedback from institutional shareholders, with plans to re-engage them to address concerns over the potential conflict of interest related to the Shenton House redevelopment, which is set to begin in early 2027.
"Following further review and stakeholder engagement, Lee may request a future general meeting to address the conflict," said the research firm.
HLIB said revisiting the acquisition could be the "best available option" given the improved occupancy rates at the property.
The house noted in a report on Friday that rising occupancy rates at IOI Central Boulevard (IOICB), record-breaking office transactions, and declining interest rates are factors that make the acquisition increasingly feasible and aligned with IOI Properties’ growth ambitions.
Current market dynamics are especially supportive of the acquisition, with IOICB’s occupancy rate increasing from 50% in June to 68% currently, indicating solid demand for premium office spaces, according to the report.
Additionally, Singapore’s property market has reportedly been buoyed by record office transactions and positive sentiment, which could enhance Shenton House’s valuation if integrated into IOI Properties' portfolio.
“By end-2024, the group’s Singapore land bank will be fully utilised, with the commencement of IOICB and the launch of the Marina View project. Thus, Shenton House is a strategic addition to sustain the group's growth in Singapore,” said HLIB.
The decline in interest rates adds another layer of feasibility to the acquisition, with approximately 82% of IOI Properties' debt in Singapore dollars on floating rates, while the expected cuts from the US Federal Reserve could lower rates to below 3%, easing capital pressure on IOI Properties and making the acquisition more financially viable.
Nevertheless, HLIB downgraded slightly its estimates for IOI Properties by 2.3% for the financial year ending June 30, 2025 (FY2025) and 0.7% for FY2026, while introducing its forecast for FY2027 at RM1.26 billion, implying an impressive three-year compound annual growth rate of 25.3% from FY2024 to FY2027, underscoring IOI Properties’ strong growth trajectory.
The house maintained its 'buy' call on IOI Properties, with a higher target price of RM4.05, based on a 35% discount to the revised net asset value of RM6.24, following a valuation rollover.
With Singapore serving as the cornerstone of IOI Properties’ growth, coupled with favourable property sentiment in its core markets of Malaysia, Singapore, and China, the outlook for the company remains strong.
“The group is now on the cusp of unleashing significant value from its jewel assets in Singapore, namely IOICB and Marina View Residences, which should anchor strong earnings ahead for FY2025 and beyond,” said HLIB.
At the time of writing on Friday, IOI Properties shares were four sen or 1.73% lower at RM2.27, valuing the company at RM12.5 billion. Year to date, the counter is up 51 sen or 28.98%.