KUALA LUMPUR: IOI Corp Bhd’s venture into large-scale solar energy with Tenaga Nasional Bhd (TNB) is expected to unlock value from its land assets while providing a new source of recurring income, says CIMB Securities.
The research house views the venture positively, saying it could enhance returns from IOI Corp’s land bank and support its long-term earnings diversification strategy.
“We estimate the project could generate annual net profit of RM50 to RM60 million. This implies an RM12.5 to RM15 million contribution to IOI, based on its 25 per cent stake, excluding lease income,” it said in a note.
CIMB Securities estimated that the project could generate a combined annual net profit contribution and lease rental income of RM22 million to RM24.5 million from 2029.
IOI Corp had announced that its wholly-owned subsidiary, Luminous Aspect Sdn Bhd, entered into a joint venture with TNB Renewables Sdn Bhd (TRe) and a consortium of 12 small and medium enterprises (SMEs).
The partnership will develop a 500-megawatt alternating current (MWac) solar photovoltaic project integrated with a 250 MW/1,000 MWh battery energy storage system (BESS) in Bahau, Negri Sembilan.
Under the arrangement, IOI Corp will hold a 25 per cent stake in the project, while TRe will own 70 per cent and the SME consortium the remaining five per cent.
CIMB Securities said the project, estimated to cost RM2 billion, would be funded through 80 per cent debt and 20 per cent equity, translating into an estimated equity investment of RM100 million by IOI Corp.
The project is backed by a 21-year renewable energy offtake agreement between TNB and DayOne Data Centres Ltd, with commercial operations targeted to begin in 2028.
In addition to its equity participation, IOI Corp will lease 526.09 hectares of oil palm land to the joint venture, providing an additional recurring income stream while retaining ownership of the land.
CIMB Securities maintained its earnings forecasts and sum-of-parts-based target price of RM5.03 for IOI Corp, with its ‘Buy’ recommendation unchanged.
The research firm estimated annual rental income of RM9.5 million, based on an assumed rental rate of RM18,000 per hectare for the 526-hectare site.
It said the rental income would exceed the RM8,000 to RM9,000 per hectare currently generated from plantation operations, although the actual rental rate was not disclosed.
CIMB Securities also said the venture offered a scalable model for unlocking value from IOI Corp’s land bank, although it was unlikely to materially change the group’s near-term earnings profile.
The project was expected to deliver an equity internal rate of return of between nine and 10 per cent, it added.