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 2). We make no changes to our FY21–22 net earnings forecasts while introducing FY23 net profit forecast at RM545.7mil.

• IOIPG registered an FY20 net profit of RM455.7mil. Stripping off the exceptional items – impairment loss on investment properties (RM50.4mil); property development costs written down (RM24.7mil); fair value loss on investment properties (RM54.4mil); and others adjustments (RM17.9mil) – FY20 core net profit of RM603.1mil (-2.2%) came in above our and consensus expectations. Revenue and core net profit fell by 3.7% and 2.2% YoY as some of IOIPG’s business segments were hugely impacted by the impact of the movement control order (MCO) amidst the Covid-19 pandemic.

• The property development segment recorded an FY20 EBIT of RM813.5mil (+22.2% YoY) mainly due the operating profit contribution from its China operation arising from the sale of the recently launched high-rise condominium in IOI Palm City, Xiamen. The project has registered a total take-up rate of 70%, equivalent to a sales value of RMB438.6mil. All in all, the property development division chalked up new sales of RM1,839mil while its unbilled sales stand at RM607mil.

• The property investment segment’s FY20 revenue and EBIT slid by 12.3% and 75.8% to RM175.8mil mainly due to lower rental income derived from the retail segment as a result of closures of non-essential businesses and services during the MCO.

• The hospitality and leisure division’s revenue and EBIT declined by 24.3% YoY to RM150.2mil while suffering an operating loss of RM27.1mil as compared to a profit of RM11.6mil YoY due to the abovementioned reason.

• We make no changes to our FY21–FY22 numbers at this juncture while introducing FY23 net profit forecast at RM545.7mil.

• 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 60%. Hence we are maintaining our BUY recommendation.

Source: AmInvest Research - 1 Sept 2020