Investment Highlights

• We maintain BUY on IOI Properties Group (IOIPG) with an  unchanged fair value of RM1.42/share based on discount  rate of 60% to RNAV and neutral ESG rating of 3 stars  (Exhibits 11 & 12). Our FV implies a FY24F PE of 10x, at parity  to its 3-year median. 

• We made no changes to our earnings forecast as IOIPG’s  9MFY23 core net profit (CNP) of RM533mil was within  expectations, making up 71% of our FY23F earnings and  70% of consensus estimate. 

• YoY, the group’s 9MFY23 revenue rose 3%, which supported  the CNP increase of 4%. This was mainly attributed to  stronger contribution from property investment (+45% YoY)  (Exhibit 2). The improvement was due to the commencement  of recurring lease income from IOI City Mall Phase 2 on 25  August 2022.

• In 9MFY23, IOIPG secured new sales of RM1.4bil (+5% YoY),  attaining 76% of its FY23F sales target of RM1.8bil (Exhibit  3). New sales were contributed largely by Malaysia (83%),  with the remainder from China (14%) and Singapore (3%).  This comprised of residential high rise (50%), residential  landed (28%) and commercial (22%) properties.

• Meanwhile, the group’s unbilled sales improved 13% QoQ to  RM554mil, which represented a cover ratio of only 0.3x of  FY23F property development revenue. 

• Despite the low unbilled sales cover ratio, we believe  IOIPG’s FY23F revenue and CNP will be mainly supported by  the group’s efforts to monetise its existing inventory of  RM2.5bil (Exhibit 4). Notably, 46% of its inventories are from  China with the remainder (54%) from Malaysia. 

• In 9MFY23, IOIPG launched RM937mil (-19% YoY) worth of  properties in Malaysia (85%) and China (15%), with an  average take-up rate of 63% (Exhibit 5). For 4QFY23,  management has guided for new property launches of  RM200mil focusing mainly on Malaysia.

• Moving forward, we believe that IOIPG will focus more on  clearing its inventory than launching new properties given  its high inventory levels. Over the past few months, IOIPG  launched various campaigns, including “IOI Buy with  Tenant” and “101 Happy Moments” to promote its  commercial properties and townships in Malaysia.

• Following China’s reopening in January 2023, we have seen signs of stabilisation in China’s property market with a  property sales growth of 4% in 1Q2023 after 6 consecutive quarters of decline. We anticipate the positive momentum  to persist in the subsequent quarters given the recovery in China’s economy, support of China’s government for the  property sector and easing of monetary policy.

• In November 2022, the Chinese government unveiled a rescue package to salvage its housing market (Exhibit 9).  China’s supportive measures for the property sector has resulted in a halt in price declines for new homes in January  2023 after decreasing for 16 months starting on August 2021. The positive trend has continued since then (Exhibit  10). 

• To support the recovery in property market, the People’s Bank of China has maintained its 5-year loan prime rate  (LPR) and 1-year LPR after the last cut in August 2022 (Exhibit 8). Market consensus expects no change to either rate  in CY23.

• QoQ, the group’s 3QFY23 CNP plunged 47%, mainly due to weaker performances from its property development  segment given reduced sales in both Malaysia and China (-7% QoQ). Its CNP was further dragged by the lower results  of both property investment and hospitality & leisure segments after a stronger 2QFY23 from the combined impact  of school holidays and festive season.

• The stock currently trades at a bargain FY24F PE of only 8x vs. its 4-year average of 11x. We continue to like IOIPG  for its: 

1) regional property development portfolio with a strong track record and successful real estate projects in  Malaysia, Singapore (Sentosa Cove) and China (Xiamen); and 

2) resilient earnings amid a prolonged property sector downturn underpinned by recurring sales from  predominantly owner-occupier home buyers in established and highly sought-after township projects,  particularly, Bandar Puteri Puchong and Bandar Puchong Jaya

Source: AmInvest Research - 29 May 2023