Investment Highlights

• We maintain BUY on IOI Properties Group (IOIPG) with a highe fair value of RM2.84/share (from RM2.05/share previously) t our revised RNAV and neutral ESG rating of 3 stars .

• Our FV implies FY25F PE of 18x, 3 standard deviations abov its 4-year mean. We believe the premium to be justified give the significant contributions expected from recurring income o IOI Central Boulevard upon its completion in FY24F Additionally, the launches of its major projects in Singapore namely Marina View Residences with a huge GDV of SGD2.6b (RM8.6bil), further support the substantial earnings growt moving forward.

• IOIPG’s 1HFY24 core net profit (CNP) of RM296mil made up 39% of both our and consensus’ forecasts. Nevertheless, we deem 1HFY23 earnings to be within expectation. We anticipate stronger performance in 2HFY24, driven by contributions from newly-acquired hotels as well as recognition of land sale revenue in Kulai and Melaka, potentially generating revenue o RM339mil and a PAT of RM116mil.

• YoY, the group’s 1HFY24 revenue fell 8% while CNP decline 29%. This was mainly attributed to weaker revenue from property development (-16% YoY) , as a result o lower property sales from China (-53% YoY). Its CNP was als dragged by the recognition of one-off tax expenses related t its joint venture in Singapore.

• In line with this trajectory, QoQ, the group’s 2QFY24 revenu declined 6% while CNP decreased 31%.

• In 1HFY24, IOIPG secured new sales of RM1.2bil (+26% YoY attaining 58% of its FY24F sales target of RM2bil with th remainder from China (4%) and Singapore (1%). 31% of 1HFY2 new sales were proceeds from land sales amounting t RM365mil.

• Meanwhile, the group’s unbilled sales surged 42% QoQ t RM722mil, which represents a cover ratio of only 0.3x of FY24 property development revenue.

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

• In 1HFY24, IOIPG launched RM1.9bil worth of properties in Malaysia (66%) and China (34%), attaining 62% of its FY24F targeted launch of RM3bil (excluding Marina View Residences).

• IOIPG’s major project in Singapore, Marina View Residences (GDV: RM8.6bil) are undergoing design adjustments to incorporate a branded residence concept in collaboration with Marriott International. This strategy aims to attract high-net-worth individuals and achieve management's goal of securing a higher selling price of SGD5,000 psf. Consequently, the launches of Marina View have been postponed to FY25F from FY24F.

• To date, IOI Central Boulevard Towers in Singapore have secured 40% of committed tenancy with an additional 20% in advanced stages of negotiation. We expect a meaningful contribution from IOI Central Boulevard Towers starting in 2QFY25F. 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) - which translates to 16% of FY26F group revenue.

• The stock currently trades at a compelling FY25F PE of 14x vs. its 4-year peak of 16x. 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),
  
  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), and
  
  3) promising growth prospect in its hospitality division, driven by the anticipated resurgence in tourism in Malaysia. Additionally, we anticipate that the recent acquisition of W Kuala Lumpur and the forthcoming addition of Courtyard by Marriott Penang will further enhance its hospitality portfolio.

Source: AmInvest Research - 29 Feb 2024