Investment Highlights

• We maintain our BUY recommendation on IOI Properties Group (IOIPG) with an unchanged fair value of RM1.73 based on SOP valuations (Exhibit 2). We make no changes to our FY20–FY22 earnings forecasts.

• IOIPG registered a 1QFY20 net profit of RM136.6mil (-22.0% YoY). Stripping off the unrealized translation loss of RM52.8mil, core net profit of RM189.4mil (+13.4%) came in within our expectations but above consensus at 26% and 28% of full-year estimates respectively. Revenue fell by 3.5% mainly due to lower contribution from the property development segment. The higher PBT (+26.5%) is contributed by development projects in China, and a higher share of profit in joint ventures mainly arising from the sale of South Beach Residences in Singapore.

• The property development segment recorded a 1QFY20 EBIT of RM181.6mil (+11.0% YoY) as a result of higher profit contribution from its development projects in China and Klang Valley. IOIPG recorded new sales of RM390mil in 1QFY20 while its unbilled sales stand at RM750mil. IOIPG is planning to launch projects worth 2.9bil yuan in GDV in FY20 with the main focus in Xiamen, China.

• The property investment segment recorded a 1QFY20 EBIT growth of 10% to RM55.0mil mainly on stronger profit contribution from the retail sub segment as a result of higher occupancy rate and average rental rate following the re-fit exercise carried out by IOI Mall, Puchong.

• The hospitality and leisure division’s revenue rose by 2% to RM50.1mil while EBIT fell by 5% to RM6.2mil. The stronger revenue is mainly due to higher occupancy rate by secured by the hotels in Putrajaya while the lower EBIT is caused by weaker performance from the leisure sub segment.

• We make no changes to our FY20–FY22 earnings forecasts. Meanwhile, the upcoming investment properties in IOI Palm City, Xiamen, comprising 2.37mil sq ft of net lettable area (NLA) in retail and office space are progressing well, and scheduled to be completed in stages from 2020. Also, the 1.5mil sq ft of retail and office area at Central Boulevard, Singapore, scheduled for completion in 2022, will provide additional revenue for the investment properties division moving forward.

• We believe the outlook for IOIPG remains positive anchored by a strong contribution from its property development projects, particularly in China and Singapore, stable income from property investments and its growing leisure and hospitality business.

Source: AmInvest Research - 26 Nov 2019