Investment Highlights

• We maintain BUY on IOI Properties Group (IOIPG) with a lower fair value of RM2.83/share (from RM2.84/share previously) based on our revised RNAV and neutral ESG rating of 3 stars .

• Our FV implies FY25F PE of 17x, 3 standard deviations above its 4-year mean. We believe the premium to be justified given significant contributions expected from recurring income of 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 SGD3.5bil (RM12bil), further support substantial earnings growth moving forward.

• The lower FV stems from the downward adjustment to FY24F core net profit (CNP) by 10% due to delayed recognition of land sales revenue in Melaka, which has been pushed to 1QFY25 from our original estimate of 4QFY24.

• IOIPG’s 9MFY24 core net profit (CNP) of RM518mil came in slightly below expectations, making up 69% of both our and consensus’ forecasts.

• YoY, the group’s 9MFY24 CNP fell 3% despite a 12% growth in revenue. This was mainly attributed to weaker operating profit from property development (-17% YoY) , as a result of lower property sales from China (-36% YoY).

• QoQ, the group’s 3QFY24 revenue rose 49% while CNP surged 83%. This was mainly due to recognition of land sale amounting to RM211mil with an estimated gross profit of RM60mil.

• In 9MFY24, IOIPG secured new sales of RM1.6bil (+16% YoY), attaining 79% of its FY24F sales target of RM2bil . New sales were contributed largely by Malaysia (92%) with the remainder from China (7%) and Singapore (1%). 23% of 9MFY24 new sales were proceeds from land sales amounting to RM365mil.

• Meanwhile, the group’s unbilled sales fell 5% QoQ to RM688mil, which represents a cover ratio of only 0.3x 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 RM2.4bil . Notably, 48% of its inventories are from overseas (China and Singapore) with the remaining 52% from Malaysia.

• In 9MFY24, IOIPG launched RM2.8bil worth of properties, attaining 93% of its FY24F targeted launch of RM3bil.

• IOIPG’s major project, Marina View Residences in Singapore (GDV: SGD3.5bil or RM12bil) is 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. Management plans to launch Marina View by the end of CY24.

• To date, IOI Central Boulevard Towers in Singapore have secured close to 50% of committed tenancy. We expect a meaningful contribution from IOI Central Boulevard Towers starting in 2QFY25F, following the receipt of Temporary Occupation Permit (TOP) by September 2024. 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 P/BV of 0.58x vs. its peers of 0.8x. 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 FY25F, along with launches of major projects in Singapore, namely Marina View Residences with a huge GDV of SGD3.5bil (RM12bil), and
  
  3) promising growth prospects for its hospitality division, driven by the anticipated tourism resurgence 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 the hospitality portfolio.

Source: AmInvest Research - 31 May 2024