Investment Highlights

• We maintain our BUY recommendation on IOI Properties Group (IOIPG) with a lower fair value of RM1.54 from RM1.73 based on SOP valuation (Exhibit 1). We cut our FY20–22 net earnings forecasts by 20% 17% and 16% respectively.

• During a recent engagement, the company updated us on its latest development, particularly the operations in China. Key notes for China operation: (i) Challenging environment since the beginning of the Covid-19 outbreak. With lockdowns and curfews, workers are not able to return to their work place and economic activities were limited. (ii) Situation has improved beginning early March as factories in China gradually restarted production and workers returned to their working place. (iii) As of mid-March, economic activities have resumed, picking up their capacity. (iv) IOIPG is planning to launch its Xiamen project progressively in May 2020 should the condition continues to improve.

• We believe the situation in Malaysia is less serious than in China, nonetheless, we shall remain cautious. With the movement control order put in place from 18 to 31 March 2020, we expect a negative impact on local property sales. Meanwhile IOIPG’s investment properties and hospitality & leisure business will be affected as well. Management is still assessing the local property sales and may consider reducing its sales target. We cut our FY20–22 net earnings forecasts by 20% 17% and 16% respectively to reflect the timing of recognition of property development and weaker revenue in the hospitality and leisure business segment.

• We reckon 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 view the recent selldown on the stock as a buying opportunity with a potential upside of more than 70%, hence we are maintaining our BUY recommendation.

Source: AmInvest Research - 18 Mar 2020