Results

• In line with Expectation: 3QFY16 core PATAMI (excluding RM85m fair value gain on investment properties and RM71m gain on purchase for land acquisition in IOI Resort City) increased 4% YoY, bringing 9MFY16 core PATAMI to RM402m, accounting for 73% of ours and consensus full year earnings forecast.

Highlights

• 9MFY16 revenue surged by 65% YoY on the back of improvement from all its business segments. Property development increased by 72% YoY mainly contributed by Triling project in Singapore and IOI Palm City in Xiamen.

• New property sales in 3QFY16 achieved RM402m (versus RM390m in 3QFY15), with 50% from Malaysia, 31% from China and 19% from Singapore. 9MFY16 sales achieved RM1.46bn, on track to exceed RM1.7bn sales target for the year.

• With the strong recovery in China’s property market, the take up rate for Phase 2 for IOI Palm City is more than 90%. The remaining GDV for IOI Palm City is about RMB3.5bn which will sustain its sales for next 2- 3 years. The company is planning to launch its 3th phase in 4QFY16.

• Unbilled has also increased from RM1.4bn to RM1.5bn, representing about 1x of FY15 property development revenue.

• In 3QFY16, operating profit from property investment surged by 74% YoY, contributed by IOI City Mall, Putrajaya which enjoy more than 90% occupancy. The company aims to increase its investment properties income from 15% of total income to 30-40% in future.

• IOIProp is one of the value stocks in our universe coverage given it is only trading at 0.63x FY17 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.

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 - 30 May 2016