Results

Normalised 2Q net profit declined 2.3% qoq to RM109.9m, with core YTD net profit of RM222.4m making up 26% and 40% of HLIB and consensus estimates respectively.

Deviations

Due to overly high forecasts by HLIB and the street.

Dividends

None.

Highlights

Property development the main earnings contributor. IOIP reported 1H net profit of RM412.6m. The main segments were property development, property investment and the leisure & hospitality segments, which contributed earnings of RM289.9m, RM32.1m and RM2.5m respectively.

One-off gain from demerger exercise. However, a large portion of reported 2Q earnings (RM300.2m) arose from an RM198m one-off gain from the acquisition of subsidiaries as part of the IOI Group’s demerger exercise. Stripping out this one-off item, core net profit in fact declined 2% qoq to RM109.9m.

Property development segment. The main earnings contributors were its development projects in Malaysia and Xiamen, China.

Property investment segment. The main earnings contributors were IOI Mall Puchong, IOI Mall Kulai and One & Two IOI Square.

Leisure & hospitality segment. The main earnings contributors were Putrajaya Mariott Hotel and Palm Garden Hotel.

Healthy earnings visibility, with RM1.2bn unbilled sales.

Risks

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

Forecasts

Maintained, pending our meeting with management.

Rating

BUY

Positives: highly liquid proxy to property sector; large war-chest for landbank acquisitions; has exposure to Singapore and China property markets; enjoys vast and cheap landbank.

Negatives: Could face sector headwinds in Malaysia, while the Singapore and China property markets are also currently at the low point of their cycles.

Valuation

We believe that IOIP will enjoy a strong re-rating when the Singapore and China markets come into their upcycle.

We maintain TP at RM4.01 (10% discount to RNAV), which values IOIP at 13.2x P/E for FY15E, which remains undemanding vs. 14.4x for UEM Sunrise.

Source: Hong Leong Investment Bank Research - 26 Feb 2014