IOI Properties Group, with stated plans to unlock value by listing two REITs based on its growing portfolio of investment properties worth more than RM20 billion, is potentially a two-bagger stock, according to Tabitha Foo and Derek Tan of DBS Group Research, the latest in a growing list of brokerages paying closer attention to this counter.
In their unrated July 7 note, Foo and Tan deem this counter to have a potential 12-month target of RM2.43, on an "as is" basis.
However, if the REITs spin-offs do come into fruition, they estimate a potential 67% upside to RM4.05.
Key assets held by IOIPG in its home market Malaysia includes the flagship IOI City Mall in Putrajaya, described as not just the largest mall in the country but also among the largest in southeast Asia, with net lettable area to grow from 2.5 million sq ft to 3.5 million sq ft when the next phase is done.
Here in Singapore, the key asset is the recently completed IOI Central Boulevard Towers, a Grade A office with over 1.29 million sq ft of office space, with leasing commitment already above 85%.
Most recently, IOIPG announced plans to buy out partner City Developments at their joint venture South Beach.
See also: Maybank, RHB stay 'neutral' on StarHub amid stable outlook and industry headwinds
According to Foo and Tan, market concerns over IOIPG's high gearing seem unwarranted. As of March, net gearing was 0.75x, up from 0.7x as at end June 2024. Upon completion of the 51% stake in South Beach from CDL, the gearing is seen to increase further to 0.94x, assuming the deal is fully debt-funded.
"We believe this is temporary, given the group's plans to unlock value from its existing assets, deleverage, and recycle capital towards higher return opportunities," say Foo and Tan.
"The monetisation of stabilised assets via REITs would not only help reduce gearing but also provide the group with greater financial flexibility to deploy its development capabilities – a core competency for IOIPG.
See also: UOB Kay Hian raises target price for Raffles Medical to $1.18
"This would support a robust pipeline for its REITs and underpin a sustainable capital recycling strategy to drive long-term growth," the analysts say.
For the Malaysia REIT, expected in the middle of 2026, they expect IOIPG to kick off with an initial portfolio of IOI City Mall, Putrajaya, and IOI Mall Damansara – along with its office assets and hotels.
Assuming a REIT target gearing of 30% and a stake of 30% in the REIT to be retained by IOIPG, the REIT is worth RM0.93 per IOIPG share, of which around RM0.65 cash per share could be extracted as cash proceeds through the listing, after taking into account the 30% strategic stake.
Foo and Tan believe a portion of the proceeds could be distributed to unitholders via a special dividend or a dividend in specie.
If used to pare down debt, this could reduce net gearing to 0.79x from 0.94x, assuming the South Beach acquisition is fully debt-funded.
As for the Singapore REIT, even at 0.8x P/NAV, the deal could unlock a further value of RM 0.87 to 2.13 per share.
"The potential injection of either South Beach or ICBT, or both, into a Singapore REIT could enable IOIPG to unlock meaningful value from its portfolio," the analysts suggest.
For more stories about where money flows, click here for Capital Section
Assuming a REIT structure with 35% gearing and IOIPG retaining a 30% strategic stake, the DBS analysts estimate the REIT could be valued at RM0.87-2.13 per IOIPG share.
From this, the company could realise approximately RM0.61 to 1.49 per share in cash proceeds from the listing.
If these proceeds are used to pare down debt, IOIPG could reduce its net gearing to a more comfortable level of 0.45-0.65x.
According to the DBS analysts, the potential pipeline for the Singapore REIT includes an upcoming hotel W Singapore and Shenton House, which is now privately held by IOIPG's CEO Lee Yeow Seng.
Using sum-of-the-parts calculation, Foo and Tan figure that there is an upside of 23% to 67% with the Malaysia and Singapore REIT spinoffs, compared to IOIPG on an “as-is” basis, which has a fair value of RM2.43 per share.
"The market has yet to price in the Malaysia and Singapore REIT spinoffs, where substantial value can be unlocked. We estimate a fair valuation ranging from RM2.99 to 4.05, implying an upside of 23% to 67% to our fair values, if these strategies are successfully executed upon," state the analysts.
"Developers are entering a new era of growth, which extends beyond strategically landbanking new sites. The focus is also shifting towards leveraging and extracting value from existing portfolios.
"The proposed REIT spinoff(s) will not only showcase the potential of IOIPG’s quality assets, but also the group’s clear commitment to unlocking value, which should help to narrow the gap between its share price and NAV," state Foo and Tan.
IOIPG shares, quoted on the Bursa, ended July 8 at RM2.13, up 2.4% for the day.
