Highlights

IOIP is one of the largest and most established property developers in Malaysia, with an excellent track record since the 1980s.

Regional footprint. The group currently has projects in Malaysia, Singapore and China, giving it diversified exposure to Asia's real estate sector. The group has 10,000 acres and RM10bn balance GDV in Malaysia, SGD2.9bn for Singapore and RMB6.7bn for China.

Recurring earnings. Its property investment portfolio includes 1.3m sft of retail space and 1.1m sft of office space. Key assets include IOI Mall in Puchong, Puchong Financial Corporate Centre and IOI Mall in Johor.

Catalysts

More upside to come. We believe IOIP’s listing does not come at the peak of the property cycle for the China and Singapore markets, with property prices being suppressed by cooling measures. With the downside for these markets being priced-in, we anticipate more re-rating ahead.

Newer and better. The new IOIP is now very different from its previous incarnation: (1) As part of the demerger, IOI Corp has injected all its development land into IOIP (6,916 acres), of which 3,933 acres (57%) has been earmarked for development within the next 3 years; (2) IOIP now has a very low net gearing of less than 5%, which makes it highly resilient to any slowdown in the property cycle; and (3) Larger issued shares with lower stake among major shareholders implies higher liquidity.

Proven track record. We like IOIP’s strong track record of sales (RM1.7bn in FY13) and its superior margins. FY11-13 gross margin has ranged from 57-61% thanks to appreciation in value of its well-located landbank.

Strong earnings growth of 17-21% for FY14-16 on the back of RM13.9bn GDV worth of projects to be launched over the next 3 years in Malaysia, Singapore and China.

Unbilled sales of RM1.2bn (0.9x FY13 revenue) further enhances earnings visibility.

Risks

Has 28% exposure to China and Singapore in terms of GDV, making it sensitive to any external slowdown and forex fluctuations.

Comment

Will list with estimate market cap of RM8.13bn (based on RM2.51 reference price), IOIP will be one of the largest-cap property developers in Malaysia.

Valuation

Based on DCF valuation, our RNAV estimate for IOIP is RM4.45. We believe that the new IOIP will enjoy a strong re-rating thanks to its favourable catalysts and we thus ascribe a 10% discount to RNAV for TP of RM4.01, which values IOIP at 17.3x P/E for FY14E, as we believe it will trade at the upper end of the valuation range for Malaysian property developers.

Source: Hong Leong Investment Bank Research - 15 Jan 2014