Results

• Slightly Above Expectation: 1HFY16 core PATAMI (excluding RM132m fair value on investment properties in South Beach, Singapore) surged by 43% YoY, accounting for 52% of ours and consensus full year earnings forecast.

Highlights

• 2QFY16 revenue doubled YoY on the back of improvement from all its business segments. Property development doubled YoY mainly contributed by Triling project in Singapore and IOI Palm City in Xiamen. Contribution from China has increased sequentially from 38% to 39%.
• New property sales surged from RM303m to RM706m QoQ, bringing 1H sales to RM1.06bn, accounting for 63% of FY16 sales target of RM1.7bn. We see upside potential on the full years target given the strong take up rate from IOI Palm City in Xiamen.
• Given the overwhelming response, IOI Prop has launched its Phase 2 for IOI Palm City with total GDV of RMB1.4bn in Dec 15 and already achieved take up rate of 75%. The remaining GDV for IOI Palm City is about RMB3.5bn which will sustain for next 2-3 years.
• We expect to see sales momentum to sustain in the subsequent quarters, driven by Phase 2 Palm City, Le Pavillion, Bandar Puteri Puchong (GDV:RM515m) and Avira Residence, Bandar Puteri Warison (GDV:RM148m).
• Property investment revenue surged by 65% YoY, contributed by IOI City Mall, Putrajaya which enjoyed more than 90% occupancy. The company aims to increase investment properties income from 15% of total income to 30-40% in future.
• IOIProp is one of the value stocks in our property universe as it is only trading at 0.57x FY16 P/B as compare to peers’ average of 1x. We believe the stock warrants a re-rating given its strong track record in township development and its attractive valuation.

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

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

Source: Hong Leong Investment Bank Research - 26 Feb 2016