Investment Highlights

• We maintain BUY on IOI Properties Group (IOIPG) with a higher SOP-derived fair value of RM1.80/share (from RM1.45/share previously) and a neutral 3-star ESG rating (Exhibits 4 & 5). The higher valuation stems from a 7% rise in other landbanks and 4% rise in investment properties.

• Excluding written-down property development costs, forex gains and one-off fair value loss on investment properties totalling RM139mil, IOIPG’s FY21 core net profit (CNP) of RM799mil (+29% YoY) was above expectations, coming in 30% higher than our forecast and 24% above consensus.

• Thus, we raise our FY22–23F earnings forecasts by 22% and 27% respectively while introducing FY24F net profit of RM869mil which assumes a conservative new sales growth of 4%.

• YoY, FY21 revenue rose 18% to RM2.5bil from a 29% surge in property development billings, partly cushioned by weaker performance in property investment (-11%) and hospitality & leisure (-44%).

• The improved revenue in property development was supported by the recovery in sales momentum from a low base in 3QFY20 (Exhibit 3). IOIPG chalked up new sales of RM2.3bil (+25% YoY), exceeding its initial FY21 sales target of RM1.8bil. 61% of the sales were from Malaysia, 38% in China and 1% in Singapore. Hence, the group’s unbilled sales climbed 33% YoY to RM810mil as at 30 June 2021.

• Operating profit from property investments dropped 22% YoY to RM130mil as higher rental rebates were given to tenants. Meanwhile, losses from the hospitality and leisure segments widened to RM30mil from a 44% decrease in revenue due to various MCOs.

• QoQ, 4QFY21 CNP surged 62% to RM293mil thanks to higher associates’ contributions arising from a reversal of inventories written down earlier at Cape Royale in Singapore.

• We continue to like IOIPG for: (1) its good proxy to China (which accounts for a sizeable 38% of FY21 sales), the first key global economy that has emerged from the pandemic; (2) being a home-grown regional property developer with a strong track record and successful real estate projects in Malaysia, Singapore (Sentosa Cove) and China (Xiamen); and (3) its resilient earnings amid a prolonged property sector downturn underpinned by recurring sales in predominantly owner-occupied home.

Source: AmInvest Research - 27 Aug 2021