Results

• Inline Expectation: 1QFY16 core PATAMI surged by 14% YoY, accounted for 21% of ours and consensus full year earnings forecast.

Deviations

• Expect stronger quarter ahead with the launch of Phase 2 IOI Palm City in 2QFY06/16.

Highlights

• 1QFY16 revenue grew 58% yoy on the back of increased revenue from all its business segments. Property development revenue grew by 59% YoY mainly contributed by Triling project in Singapore and IOI Palm City in Xiamen. Contribution from China has increased sequentially from 27% to 38%.

• Phase 1 Palm City (GDV of RMB550m) has achieved strong take up rate of 95% (versus 80% last quarter). Given the overwhelming response, IOI Prop is targeting to launch its second phase in 2QFY06/16.

• New property sales in 1QFY16 has slowed down to RM303m (4QFY15 sales: RM700m) mainly due to absence of new launches locally and oversea. However, we expect to see new sales to pick up in subsequent quarter with the launches of Phase 2 Palm City, Le Pavillion, Bandar Puteri Puchong (GDV:RM515m) and Avira Residence, Bandar Puteri Warison (GDV:RM148m). We believe full year sales target of RM1.7bn (flat YoY) remain achievable. Unbilled sales YTD stood at RM1.52bn, representing 1x of FY15’s property development revenue.

• We believe the recent land acquisition from Tan Sri Dato’s Lee Shi n Chen is a fair and synergy acquisition as this will expand IOIProp’s landbank in IOI Resort City from existing 50 acres to 450 acres and complement existing development. In addition, this also provides opportunity for IOIProp to embark on the development of second phase IOI City Mall which has already achieved 92% occupancy rate.

• IOIProp is one of the value stocks in our universe coverage given it is only trading at 0.57x FY16 P/B as compare to peer at average 1x. We believe the stock warrants a re-rating given its strong track record in township development and its attractive valuation.

Risks

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

Rating

BUY

• Posi tives: 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 remained unchanged at RM2.77 based on unchanged 35% discount to RNAV. Maintain BUY.

Source: Hong Leong Investment Bank Research - 17 Nov 2015