Investment Highlights

• We upgrade IOI Properties Group (IOIPG) to BUY from HOLD on with an unchanged fair value of RM1.83 based on SOP valuation (Exhibit 3). We make no changes to our FY21–23 net earnings forecasts. The recent selldown on the stock provides potential upside of more than 30%. Our BUY recommendation is premised on improving market conditions in China while the availability of Covid-19 vaccines in Malaysia will improve the company’s recovery prospects in all its business segments.

• IOIPG’s 1HFY21 core net profit of RM322.6mil came in within expectations despite making up 57% and 54% of ours and consensus full-year estimates, as we expect income from the hospitality and leisure segment to be lower in 3QFY21 due to the impact of the movement control order (MCO) 2.0.

• 1HFY21 revenue grew by 13.3% while core net profit was 11.2% lower. The stronger revenue was due to higher contribution from its property development division but core earnings were dragged by operating loss in the hospitality and leisure segment.

• The property development segment recorded a 1HFY21 EBIT of RM478mil (+9.5% YoY) mainly on stronger contribution from projects in Malaysia and China. All in all, the property development division chalked up new sales of RM916mil vs. YoY’s RM875mil whereby 52% was derived from Malaysia, 46% from China and Singapore 2%. IOIPG’s unbilled sales stands at RM477mil as compared to QoQ’s RM696.8mil.

• The property investment segment’s 1HFY21 revenue and EBIT fell by 15.5% and 20.1% to RM156.8mil and RM101mil respectively mainly due to rental relief assistance extended to tenants due to the Covid-19 pandemic. The construction progress of IOI Palm City Mall remains on schedule and business is expected to commence by 3QCY2021.

• The hospitality and leisure division’s 1HFY21 revenue dived by 56.5% to RM45.5mil and suffered a loss before tax of RM25.9mil as compared to a profit of RM18.5mil YoY due to the Covid-19 pandemic.

• We make no changes to our FY21–FY23 numbers at this juncture. We reckon that the long-term outlook for IOIPG remains stable, supported by improving market conditions in China while the availability of Covid-19 vaccines in Malaysia will improve the recovery prospects of all IOIPG’s business segments. We view the recent selldown on the stock as a buying opportunity with a potential upside of more than 30%. Upgrade to BUY.

Source: AmInvest Research - 23 Feb 2021