Investment Highlights

• We maintain BUY on IOI Properties Group (IOIPG) with a higher fair value of RM2.05/share (from RM1.91/share previously) to our rolled-forward RNAV and neutral ESG rating of 3 stars (Exhibits 8-9). Our FV implies FY25F PE of 13x, close to the average of the larger cap property stocks currently.

• We made no changes to our earnings forecasts as IOIPG’s 1QFY24 core net profit (CNP) of RM175mil was within expectations, making up 23% of our FY24F earnings and 22% of street’s.

• YoY, the group’s 1QFY24 revenue fell 6% while CNP declined 13%. This was mainly attributed to weaker revenue from property development (-15% YoY) (Exhibit 2), as a result of lower property sales (-16% YoY) contribution from both Malaysia and China.

• In 1QFY24, IOIPG secured new sales of RM587mil (+31% YoY), attaining 29% of its FY24F sales target of RM2bil (Exhibit 3). New sales were contributed largely by Malaysia (98%) with the remainder from China (2%). 36% of 1QFY24 new sales were proceeds from land sales amounting to RM211mil.

• Meanwhile, the group’s unbilled sales dropped 18% QoQ to RM509mil, which represents a cover ratio of only 0.2x of FY24F property development revenue.

• Despite the low unbilled sales cover ratio, we believe IOIPG’s FY24F revenue and CNP will be mainly supported by the group’s efforts to monetise its existing inventory of RM2.7bil (Exhibit 4). Notably, 43% of its inventories are from overseas (China and Singapore) with the remaining 57% from Malaysia.

• IOIPG’s 1QFY24 completed inventories expanded 13% QoQ given the classification of its (i) office and retail units in Conezion Commercial from investment properties to inventories; and (ii) Kulai agricultural land held for development to inventories. Excluding these reclassification, the group’s completed inventories reduced 7% QoQ, in line with IOIPG’s inventory monetisation effort.

• In 1QFY24, IOIPG launched RM1.2bil (6x YoY) worth of properties in Malaysia (80%) and China (20%), attaining 10% of its FY24F targeted launch of RM12bil. We anticipate its major project, Marina View Residences in Singapore with a gross development value (GDV) of RM8.6bil (73% of group’s total planned launches) to kick off in 3QFY24 and contribute positively to IOIPG’s FY25F-FY28F revenue (Exhibit 6).

• The average take-up rate for IOIPG’s 1QFY24 launches was 36% (Exhibits 5). The low take-up rate was attributed to 3 out of 5 projects launched being recently introduced in September 2023, the final month of 1QFY24.

• To date, IOI Central Boulevard Towers in Singapore have secured 40% of committed tenancy with an additional 20% in advanced stages of negotiation. IOI Central Boulevard Towers is targeted to receive the first phase of temporary occupation permit in 3QFY24, enabling tenants to move in before the completion of remaining amenities. We expect a meaningful contribution from IOI Central Boulevard Towers starting in FY25F. Assuming 90% occupancy rate and monthly rental rate of SGD12 psf, the recurring rental income from IOI Central Boulevard Tower could be significant at SGD167mil (RM585mil) (Exhibit 7) - which translates to 16% of FY26F group revenue.

• QoQ, the group’s 1QFY24 CNP surged 63% despite a 3% decline in revenue. The stronger CNP was attributed to a higher share of results from joint ventures due to the reversal of inventories previously written down. Additionally, contribution from IOI City Mall Phase 2, which commenced in August 2022, further bolstered CNP.

• The stock currently trades at a bargain FY25F PE of 11x vs. its 3-year median of 13x. 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) substantial contributions from recurring income of IOI Central Boulevard upon its completion in FY24F, along with launches of major projects in Singapore, namely Marina View Residences with a huge GDV of SGD2.6bil (RM8.6bil).

Source: AmInvest Research - 27 Nov 2023