Highlights

• We met up with IOIProp management recently and walked away feeling positive. Following are the salient points from the meeting.
• The company, well known for its township developments in the past, is busy with its recently two big township development in Klang Valley: Bandar Puteri Bangi (GDV:RM4.8bn) and Bandar Warisan Sepang (GDV:RM1.3bn). Phase 1 Bandar Puteri Bangi (GDV: RM300m) has received take up rate of 80% while Phase 2 (GDV: RM300m) which was launched in May has take up rate of 40-50%. Bandar Warisan, Sepang, which is close to Xiamen University, has total GDV of RM1.3bn and is ready to launch.
• In China, IOIProp is kept busy with its IOI Palm City Xiamen (GDV:RMB2.8bn), Phase 1 was launched in May with GDV of RMB550m and has sold 80%.
• IOI City Mall, Put rajaya is 90% tenanted with average rental of RM6 psf. The company aims to increase investment properties income from 15% of total income to 30-40% in future. Total mall and office NLA is expected to increase from 5.7m in 2015 to 7.25m in 2018 (+27% increase).
• We estimate its current unbilled sales of RM1.4bn will translate into net profit of close to RM400m (in line with our earnings forecast of RM390m) in FY06/15. Going forward, we expect net profit to increase by 41% to RM552m in FY16.
• Back by its solid balance sheet with net gearing of <0.1x, the company is capable of raising its dividend payout while building landbank to sustain its property development.
• Given its well established track record in township development even in midst of economic downturn (as seen in 1997-1998) and its solid balance sheet, we believe the company will be able to withstand current headwind in property sector. This, plus its current valuation at deep discount to its NAV of RM3.50 per share, we believe the stock warrants a re-rating. We upgrade our recommendation to BUY from HOLD.

Rating

BUY

• Posi tives: highly liquid proxy to property sector; large war-chest for landbank acquisitions; low land cost

Negatives

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

Valuation

• TP remained unchanged at RM2.27 based on unchanged 35% discount to RNAV which provides 29% upside after recent share price correction. We deem current share price as opportunity for long term investors to accumulate at deep value.

Source: Hong Leong Investment Bank Research - 10 Jul 2015