PETALING JAYA: Analysts have varying views on IOI Properties Group Bhd
’s (IOIPG) S$2.476bil (RM7.77bil) purchase of Asia Square Tower 2 (AST2) in Singapore.
While all reports acknowledge the Grade A office property is of strategic value, they differ in their assessment of the financial impact and the IOIPG’s future valuation.
CGS International (CGSI) Research is “neutral” on the deal, noting the incremental recurring income from the prime office asset in Marina Bay is offset by concerns over an elevated balance sheet.
“Based on our assumption of 3.3% cap rate and 2.3% cost of debt, we estimate the office asset could bring about around RM65mil in incremental recurring net profit in financial year 2027 (FY27).
“It would raise IOIPG’s net gearing to 1.03 times from the pro forma net gearing of 0.76 times upon completion of its Malaysian real estate investment trust (REIT) listing by end-2026, implying a slower de-leveraging path ahead, in our view,” the research house stated in a report on IOIPG following the announcement of the deal.
CGSI Research has reiterated an “add” call on the stock with a target price (TP) of RM4.08 a share. It also highlighted AST2 could see an uplift in rental rates through yield-accretive asset enhancement initiatives and stronger pricing power within the Marina Bay central business district (CBD).
The deal makes IOIPG one of the largest prime office owners in Singapore’s CBD, with S$10bil in assets under management.
The acquisition paves the way for a potential large-scale REIT spin-off of Singaporean assets in 2027 or 2028, CGSI Research added.
Kenanga Research, however, had a more cautious stance due to IOIPG’s rising leverage rating.
The research house is wary of the gearing ratio rising above one times while the asset delivers less than 1% return on assets earnings and makes the group highly sensitive to Singapore’s overnight rate average fluctuations and impact profitability.
It also has a “market perform” call on the stock with a TP of RM3.70 a share.
It, nevertheless, acknowledged the AST2 is adjacent to IOI Central Boulevard Towers, which could unlock economies of scale and increase bargaining power with tenants.
Hence, Kenanga Research lifted its FY27 earnings forecast for IOIPG by 6% to account for the new asset’s contribution.
Hong Leong Investment Bank (HLIB) Research is positive on the deal and has a “buy” call on IOIPG with a TP of RM5.20 a share.
It noted the valuation for AST2 is fair and has a bullish view on the Singapore office market, which it views as entering a super cycle due to a structural supply-demand mismatch and record-low vacancies.
HLIB Research expects the high gearing level for IOIPG to be temporary as it expects the group to monetise mature assets through a private commercial real estate fund as early as 2027, which can be established faster than a listed REIT.
“The stock offers a compelling proxy to resilient Malaysia and Singapore real estate markets, providing diversification and a defensive hedge amid global volatility.”
