Results

• Below Expectations: Reported 1QFY15 PATAMI of RM101.0m came in below expectations, accounting for only 16.4% and 17.6% of ours and consensus’ full year earnings forecast, respectively.

Deviations

• Higher-than- expected selling and marketing expenses, administration expenses and other operating expenses, as well as effective tax rate.

Dividends

• None.

Highlights

Property development… IOIPG reported revenue and operating profit of RM311.3m (+27%) and RM124.3m (+11%) respectively from higher sales from completed projects and advanced progress works.

Property inve stment segment… Growth of 19% and 8% in revenue and operating profit largely c ame from rental income from assets acquired from the internal restructuring exercise last year.

Leisure & hospitality segment… Higher revenue of RM35.6m and operating profit of RM9.6m was mainly contributed by additional income generated from Putrajaya Mariott Hotel and Palm Garden Hotel, which was acquired from the restructuring exercises.

Earnings visibility… YTD unbilled sales stood at RM1.43bn, representing 0.95x of IOIPG’s FY14 revenue.

Risks

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

Forecasts

• We turned more conservative on the group’s prospects, especially on its foreign operations. As such, we trimmed our FY15 -17 EPS by approximately 22- 25%. Our latest earnings assumption represents a growth of 13% for FY15, which we believe would be largely coming from the potential launch of its township development in Bangi.

Rating

HOLD

• 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

TP is lowered to RM2.65 (from RM3.94) after taking into account earnings revision and higher discount to RNAV of 30% (vs. 20% previously). Our TP of RM2.65 valued IOIPG at 18.5x FY15 P/E, vs. 18.7x FY15 P/E which UEM Sunrise is currently trading at.

We also downgraded our recommendation to HOLD in view of persistent earnings disappointment.

Source: Hong Leong Investment Bank Research - 24 Nov 2014