Analysts positive on IOI Corp’s disposal of stake in Loders Croklaan

PETALING JAYA: Analysts are positive on IOI Corp Bhd’s disposal of a 70% stake in wholly owned specialty oils and fats manufacturing subsidiary Loders Croklaan Group BV, as the group will be able to monetise its investment at an attractive offer price.

On Tuesday, IOI Corp said it plans to dispose of the stake to Koninklijke Bunge BV (KBBV) for US$595 million plus €297 million, totalling about RM3.94 billion in cash. Post-disposal, the group will own the remaining 30% stake in Loders.

In a note today, PublicInvest Research opined that the offer price is attractive for the group, taking into consideration the volatile business environment of the specialty oils and fats segment.

“The proposed acquisition is based on FY16 enterprise value (EV) earnings before interest, taxes, depreciation and amortization of 13 times, which is deemed at a premium to the average of 10.7 times.

“We think it is a good offer for IOI Corp, and it can refocus its attention on its existing refining and oleochemical businesses, while looking for new potential opportunities,” its analyst Chong Hoe Leong said.

PublicInvest Research maintained its “neutral” stance on IOI Corp, with a higher target price of RM4.64, taking into consideration lower net borrowings.

In a separate note, HLIB Research said it is positive on the group’s latest development, as the proposed disposal would allow it to monetise its investment at an attractive consideration and reduce its net gearing position.

Its analyst Chye Wen Fei said the disposal will bring down IOI Corp’s net debt and net gearing from RM5.44 billion and 0.76 times (as at end-FY16) to RM2.93 billion and 0.34 times.

Chye said the research house also expects minimal impact on the group’s earnings, given that loss of earnings contribution will likely be partly offset by lower interest expense and IOI Corp’s large earnings base.

HLIB Research maintained its “hold” call on IOI Corp, as valuation remains stretched. Price to earnings ratio for financial year 2017 and 2018 are at 23.2x and 21.4x.