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 3). We make no changes to our FY20–FY22 earnings forecasts.

• IOIPG registered a 1HFY20 net profit of RM336.4mil (+2.9% YoY). Stripping off the unrealised translation loss of RM26.9mil, core net profit of RM363.3mil (-3.5%) came in within our expectations but above consensus at 51.0% and 54.4% of full-year estimates respectively. Revenue and core net profit fell by 9.9% and 3.5% YoY respectively mainly due to lower contribution from the property development segment.

• The property development segment recorded a 1HFY20 EBIT of RM338.4mil (-12.2% YoY) mainly due to lower contribution from Johor and China operations. IOIPG posted new sales of RM875.8mil (Malaysia: 74%; China: 24%; Singapore: 2%) in 1HFY20 while its unbilled sales stand at RM741.5mil. Meanwhile, the company is constantly monitoring the situation of Covid-19 in China and may consider deferring new launches until the situation stabilises. Nonetheless, the company remained optimistic on the longer term whereby the project locations are served by good infrastructure and amenities.

• The property investment segment’s 1HFY20 EBIT grew by 3.9% to RM107.8mil mainly on a stronger profit contribution from the retail sub-segment as a result of higher occupancy and average rental rates following the refit exercise carried out by IOI Mall, Puchong and the renewal of tenancies by IOI City Mall, Putrajaya.

• The hospitality and leisure division’s revenue rose by 2.3% to RM104.8mil while EBIT fell by 4.2% to RM14.7mil. The stronger revenue is mainly due to the higher occupancy rate secured by its hotels in Putrajaya while the lower EBIT is caused by a weaker performance from the leisure subsegment.

• We make no changes to our FY20–FY22 earnings forecasts as we believe the long-term outlook for IOIPG remains positive anchored by a positive contribution from its property development projects, stable income from its property investments and its growing leisure and hospitality business. We viewed the recent selldown on the stock as a buying opportunity with a potential upside of more than 60%, hence we are maintaining our BUY recommendation.

Source: AmInvest Research - 26 Feb 2020