Results

• Below Expectations: Reported 1HFY15 PATAMI of RM203.0m came in below expectations, accounting for only 43.6% and 42.9% of ours and consensus’ full year earnings forecast, respectively.

Deviations

• Lower-than-expected margins for property developments.

• Lower-than-expected share of results of associates and joint venture.

Dividends

• None.

Highlights

• Yoy: IOIPG recorded revenue growth of 13.4% attributable to its largest earnings driver (property development segment) which experienced growth of 8%. Revenue under property investment, leisure & hospitality and others also grew mainly due to higher income generated from assets acquired from the internal restructuring exercise completed in end-2013.

• YTD: Revenue grew 14.2% yoy on the back of increased revenues under all its business segments. Bottomline experienced further growth of nearly 3x due to an one-off fair value gain of RM178.3m on the completion of IOI City Mall that has commenced operations in Nov 2014. Stripping it off, PATAMI shows a decline of 5.4% yoy.

• Qoq: Flattish PATAMI of 1% was due to higher gross profit registered from both property development and property investment segments, offset by the decline in share of results of joint ventures.

• IOIPG remained focused in launching affordable housing and landed properties in its existing and new townships in Klang Valley and Johor. We understand that the group targets to launch circa RM1.5bn worth of projects in 2HFY15.

Risks

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

Forecasts

• We tweaked our FY15-17 EPS 11-16% lower after taking into account lower margins for its property developments as well as lower share or results of associates and joint ventures.

Rating

HOLD

• Positives: highly liquid proxy to property sector; largewar-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 RM2.27 (from RM2.35) based on unchanged 35% discount to RNAV, after taking into account earnings revision. Our TP of RM2.27 valued IOIPG at 18.9x FY15 P/E.

Maintain HOLD.

Source: Hong Leong Investment Bank Research - 16 Feb 2015