Highlights

We recently met with management to obtain some updates on its various development projects, and to seek more earnings clarity. We came away feeling more reassured than ever of its prospects, and re-iterate our view that IOIP remains undervalued at this juncture.

Major projects all on-track. IOIP’s Park Bo Bay @ Xiamen, China is doing well, but management concedes the operating environment in Singapore remains challenging. In Malaysia, its major launches are in the hotspots of Southern Klang Valley and Johor, and it is also developing 6.55m sft of new investment property assets.

Refining our earnings forecast. Following our visit to management we have tweaked our earnings projections by making our margin assumptions more detailed. Although our FY14-15 net profit forecast is reduced by 25-34%, we remain upbeat on its earnings growth in FY15 and still opine that its 11.4x FY15E P/E is undemanding vs. big-cap peers.

Catalysts

In this report, we highlight six key re-rating catalysts:

(1) Attractive upside from its Singapore and China (which are currently at the trough) exposure to trigger future rerating;

(2) Strong established position as a leading township developer in Malaysia;

(3) IOIP has the largest development landbank in Malaysia, injected at low land cost from IOIC;

(4) More re-rating to come as it unlocks value from its property investment portfolio;

(5) IOIP has the strongest balance sheet amongst property developers in Malaysia; and

(6) IOIP’s Syariah status is expected to be resolved in May.

Risks

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

Comment

IOIP currently trades at 11.4x FY15E P/E, which is undemanding vs. its fellow big-cap developers, UEM Sunrise and SP Setia (14.9x and 11.0x respectively). As we believe IOIP enjoys better growth prospects than UEM Sunrise and SP Setia, IOIP is our top pick in the large-cap space.

Valuation

After tweaking our earnings, our RNAV estimate for IOIP is changed slightly from RM4.45 to RM4.28.

We are keeping our 10% discount to RNAV, with a new TP of RM3.85, which implies 16.9x FY15E P/E. We believe this is a fair valuation benchmark for IOIP, given that UEM Sunrise currently trades at 14.9x FY15E P/E. Moreover, we are bullish on IOIP’s re-rating prospects, and opine that it deserves to trade at the upper end of the valuation range for Malaysian property developers. BUY

Source: Hong Leong Investment Bank Research- 4 Mar 2014