- We initiate coverage on IOI Properties Group (IOIP) with a BUY call with our fair value pegged at RM3.20/share - a 20% discount to NAV. Based on a reference price of RM2.51/share, the IOIP odyssey continues as it makes a comeback to Bursa Malaysia as the second largest property stock by market cap (RM8bil) today.

- The re-listing of IOIP would likely lead to better share price discovery when valuing its property assets, which were previously embedded at the IOI Corp (IOIC) level. Total landbank has doubled to ~10,000 acres since five years ago following a series of astute and NAV-accretive deals.

- Key purchases include:- (i) ~642 acres of prime land in the fast growing areas of Dengkil and Bangi for RM739mil (average: RM26 psf), earmarked for future township projects; (ii) Kempas; (iii) Medini; and (iv) Xiamen, China.

- IOIP has carved a niche as a reputable township developer, judging by its successful Bandar Puteri and Puchong Jaya townships. Future NAV growth is underpinned by a sturdy GDV pipeline of c.RM20bil (Malaysia: RM10bil; China: RMB5bil; Singapore: S$3bil) over the next three years (pre-sales of RM6bil-RM7bil).

- More value should be unlocked via ~224 acres of mostly commercial land remaining in Puchong (carrying value: ~RM24psf-RM36psf). The improved accessibility to Puchong via two new LRT stops will further enhance the appeal of IOIP’s upcoming launches (e.g. IOI Rio City). IOI Mall Puchong should also improve from higher traffic.

- Other near- and mid-term catalysts include future townships in Dengkil and Bangi that will replicate the highly successful Bandar Puteri Puchong model.

- IOIP has expanded its footprint overseas in Singapore and more recently, China. IOIP debuted in China last September with IOI Park Bay in Xiamen. Phase 1 (450 units; GDV: RMB800mil) was fully sold. Phase 2 (GDV: RMB1bil) is set to be launched next month.

- IOIP is growing its recurring income base with the total NLA of its investment properties possibly growing by ~3x to 7.7 mil sq ft by 2018. The IOI City Mall (NLA: 1.4 mil sq ft) in Putrajaya is set to open its doors by end-2014. Parkson, Homepro and GSC have signed up as anchor tenants. Pretenancy rates have reached 75%.

- IOIP has historically enjoyed above peer-average development margins, mainly because of its low landbank carrying values and vigorous cost management. While some degree of normalisation is expected, our margin forecasts for FY14F-16F are 46%-49% (1QFY14: ~53%).

Source: AmeSecurities