Results

Normalised 3Q net profit declined 12.8% qoq to RM89.1m, with core 9M net profit of RM559m making up 54-55% of HLIB and consensus estimates.

Deviations

Mainly arising from the property investment and leisure/hospitality segments. We note that our forecast the main property development division remains ontrack.

Dividends

None.

Highlights

Property development the main earnings contributor. IOIPG reported 9M operating profit of RM429m, with property development and property investment contributing 79% and 12% respectively.

Property development segment. The main earnings contributors were its development projects in Malaysia and Xiamen, China. We understand that the Bangi and Sepang townships have been pushed back to 1H FY15 (2HCY14). We concur with management’s decision as 2H CY14 is likely to see a pickup in sales as house buyers rush to buy ahead of GST. YTD 9M sales was RM1.5bn, implying IOIPG is well on-track to achieve RM2.0bn sales for FY14 as guided previously.

Property investment segment. YTD operating margin for segment was 65%, vs. 74% for FY13.

Leisure & hospitality segment. YTD operating margin for the segment was 10%, vs. 49% for FY13.

Healthy earnings visibility, with unbilled sales remaining at RM1.2bn (1.1x FY13 property revenue).

Risks

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

Forecasts

FY14-15E forecasts reduced by 10-12% after toning down our forecast earnings from the property investment and leisure/hospitality segments.

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 adjust our TP from RM3.85 to RM3.78 (10% discount to RNAV), which values IOIP at 13.2x P/E for FY15E, which remains undemanding vs. 15.4x for UEM Sunrise.

Source: Hong Leong Investment Bank Research - 26 May 2014