Investment Highlights

• We maintain our BUY recommendation on IOI Properties Group (IOIPG) with an unchanged fair value of RM1.52 based on SOP valuation (Exhibit 3). We make no changes to our FY20–22 net earnings forecasts.

• IOIPG registered a 9MFY20 net profit of RM407.7mil (-21.8% YoY). Stripping off the unrealised translation loss of RM19.2mil, core net profit of RM427.0mil (-21.5%) came in within our expectations but below consensus at 80% and 68% of full-year estimates respectively. Revenue and core net profit fell by 11.4% and 21.5% YoY respectively mainly due to lower contribution from the property development segment and the impact of the movement control order (MCO) amidst the Covid-19 pandemic. We expect a weaker 4QFY20 earnings due to the same reason.

• The property development segment recorded a 9MFY20 EBIT of RM497.9mil (-14.9% YoY) mainly due to the MCO and lockdown in China as a result of Covid-19 pandemic. IOIPG posted new sales of RM1,143mil (Malaysia 75%, China 24%, Singapore 1%) in 9MFY20 while its unbilled sales stand at RM517mil. Management stressed that post-MCO, work shifts of construction jobs will need to be increased to clear backlogged work. The company is still assessing the local property market, and may consider reducing its sales target.

• The property investment segment’s 9MFY20 EBIT fell by 16.0% to RM175.8mil mainly due to lower rental income derived from retail segment as a result of closure of nonessential businesses and services during the MCO.

• The hospitality and leisure division’s revenue declined by 6.0% to RM140.2mil while EBIT plunged by 70% to RM3.4mil due to the abovementioned reason.

• We make no changes to our FY20–FY22 earnings forecasts at this juncture. To recap, we have cut our FY20–FY21 earnings forecasts by 6.1% and 5.9% respectively in our previous sector report dated 9 April 2020 to reflect the impact of the MCO and its spillover effects to the economy which may result in lower revenue recognition.

• We reckon that the long-term outlook for IOIPG remains stable, supported by improving market conditions in China and stable local property sales. We view the recent selldown on the stock as a buying opportunity with a potential upside of about 40%, hence we are maintaining our BUY recommendation.

Source: AmInvest Research - 1 Jun 2020