Review

• IOIPG’s FY23 normalised net profit of RM630.4mn came in below our expectations, accounting for 84% and 83% of ours and consensus’ full-year forecasts, respectively. The variance was largely due to lower-thanexpected contribution from China.

• We derived our normalised net profit after excluding the reversal of inventories previously written down of RM192.7mn included in the share of results of JVs, and the fair value gain on investment properties RM716.8mn, but adding back inventories write down of RM18.5mn and impairment losses on investment properties and property, plant and equipment totalling RM129.3mn.

• In spite of the earnings shortfall, the board declared an interim single-tier dividend of 5.0sen/share, surpassing our projection of 4.0sen/share (FY22: 4.0sen/share).

• YoY: FY23 revenue were rather flattish at RM2.6bn (+0.1% YoY) RM1.9bn, attributable to impressive recovery observed in the property investment and hospitality and leisure segments. However, the positive performance was partially offset by a comparatively weaker showing in the property development segment, mainly due to sluggish sales in China caused by prolonged lockdown measures, as well as slower uptake of the remaining larger villa units available for sale.

• Normalised net profit decreased 21% YoY to RM630.4mn in FY23, as the previous year’s results were buoyed by the sale of a subsidiary that owned 257.7 acres of plantation land, which resulted in a gain on disposal of RM86.0mn. Excluding this, IOIPG’s bottom-line would have declined by 12% YoY in FY23.

• QoQ: 4QFY23 normalised net profit declined 13% to RM101.0mn. The weaker sequential performance can be attributed to increased tax expenses (+78% QoQ).

• IOIPG’s 4QFY23 new sales declined 3% YoY but jumped 34% QoQ to RM595mn, bringing the FY23 sales to RM1.96bn (+2% YoY). This was within the management’s sales target and our sales assumptions of RM1.9bn. The group launched RM1.19bn worth of properties in FY23 with an average take-up rate of 69%.

• Of the RM1.96bn new sales, 85% were derived from Malaysia, 13% from China and 2% from Singapore. The latest unbilled sales stood at RM623mn (vs RM554mn a quarter ago).

Impact

• We raise our FY24 and 25 new sales assumptions higher to RM3.4bn and RM3.7bn from RM2.1bn and RM2.2bn previously after factoring in the launch of Marina View project in Singapore. We cut our FY24 earnings by 9.1% but raise FY25 earnings marginally higher by 0.9%. These changes consider the actual FY23 results and a shift in revenue recognition assumptions, mainly due to the anticipated higher sales contribution from the early-stage construction of Marina View.

• We forecast a net profit of RM1.1bn (+20% YoY) for FY26, with new property sales assumption of RM3.8bn (+2% YoY).

Briefing Highlights

• Although no official sales targets have been set for FY24, management anticipates significantly stronger sales driven by ambitious domestic launches worth RM2.05bn (+72% YoY). These launches include midpriced residential, commercial units, and industrial lots in various locations within the Klang Valley such as 16 Sierra, Bandar Puteri Puchong, Bandar Puchong Jaya, Warisan Puteri, Bandar Puteri Bangi, and the rebranded IOI Industrial Park in Banting. In Johor, the focus will be on Bandar Putra Kulai, followed by launches in Bandar IOI Segamat, Taman Kempas Utama, and the iSynergy industrial park in Senai.

• FY24 sales could see additional growth from the anticipated launch of Marina View in Singapore, with a potential GDV of RM8.56bn (683 units of luxurious condominium). Despite recent Singaporean government cooling measures, the management affirms the scheduled October 2023 launch, expressing confidence in sustained demand from local Singaporean buyers due to the project's strategic location.

• Management notes a subdued outlook for the China property market due to a weaker-than-expected economic recovery. However, there's renewed interest in its projects at IOI Palm City and IOI Palm International Parkhouse in Xiamen, despite concerns about liquidity among Chinese developers in the slow property sector. With most of the group's residential units already completed, management sees an advantage in building confidence among buyers looking for properties for immediate use. The group will focus on driving the sales of completed inventories in China.

• Management expects the retail and hospitality segments to perform better in FY24. New earnings contributions from IOI City Mall Phase 2, which commenced operations on August 25, 2022, are expected to boost the retail segment's performance. The mall has effectively capitalized on the resurgence of retail, entertainment, and dining activities, evident in significant footfall growth and a commendable 96% tenancy rate. In the meantime, the performance of the leisure and hospitality segment is predicted to be led by the lifting of international travel restrictions and the government's incentives to boost the tourism industry's recovery. For instance, Le Meridien at Putrajaya has achieved average occupancy rate of 73%.

• The construction of IOI Central Boulevard Towers in Singapore is targeted to be completed end 2023. It was reported that about 40% of IOI Central Boulevard Towers’ net lettable area of 1.26mn sq ft has been committed, with another 20% in advanced stages of negotiation. As the supply of new office space remains limited, particularly in the Central Business District, demand for high-quality offices remains strong. This is evidenced by an upward rental trend, with 1Q23 prime grade office rents in the Raffles Place / Marina Bay area increasing by 1.3% QoQ to SGD 10.83 psf/month, according to Knight Frank. The inclusion of Central Boulevard in IOIPG's investment properties portfolio is poised to potentially double its investment property revenue. With a conservative monthly rental rate of SGD9 - 10 psf, Central Boulevard is estimated to generate a sizable annual rental income of RM470 - 520mn, in comparison to IOIPG's FY23 property investment revenue of RM 491mn.

Valuation

• The property sector is experiencing renewed investor optimism due to a number of factors, including the anticipated end of the BNM's OPR hike cycle, the potential land value enhancement from major infrastructure projects (HSR, RTS, and MRT3) as well as the establishment of special financial/economic zones, and the possibility of homeownership-friendly policies. This upbeat outlook is anticipated to continue, which could result in ongoing gains for property stocks.

• With the optimistic outlook ahead, we raise our target P/Bk multiple from 0.3x to 0.45x, and arrive at a new TP of RM1.88/share (previously RM1.19/share). This new P/Bk multiple of 0.45x represents +2.0 SD from the stock's 5-year average P/Bk of 0.3x. We find this valuation justified due to the sizable value within the group's investment properties portfolio, especially upon the completion of IOI Central Boulevard. We upgrade IOIPG from Hold to Buy.

Source: TA Research - 29 Aug 2023