Highlights

• We met up with IOIProp management recently and walked away feeling positive.

• FY16 earnings set to achieve record high… 9MFY16 core PAT surged 30% YoY to RM400m, already exceeded FY15 full year core earnings mainly contributed by Triling project in Singapore and IOI Palm City in Xiamen. We expect QoQ growth for 4QFY16 result and is on track to meet our full year earnings estimates of RM560m.

• Robust sales from Xiamen, China... With the strong recovery in Chi na’s property market, Phase 1 and Phase 2 for IOI Palm City in Xiamen are almost fully taken up. Given the encouraging response, IOIProp is targeting to launch a 46 storey high-end condo with total GDV of RMB1bn. The remaining GDV for IOI Palm City is circa RMB4bn which will sustain its sales for next 2-3 years.

• Higher sales target of RM2.3bn in FY17… With 9M sales already hitting RM1.46bn, the company is on track to exceed its RM1.8bn sales target for the year. IOIProp is bullish on the prospects and targeting to increase its sales to by 28% YoY to RM2.3bn in FY17 with overseas to contribute 40% of total sales.

• Investment income to buffer any slowdown in property sales… Recurring income from property investment is contributing circa 20% of bottomline and is expected to increase to 30-40% in future. IOI City Mall has received well response with more than 95% occupancy rate. The construction of Phase 2 of IOI City Mall has started with an increase in NLA from 1.5m sf to 2.5m sf in 4 years.

• Domestic launching is progre ssing well… The recent launch of Conezion at IOI Resort City has secured 50% take up rate since Apr 16 while Le Pavillion in Bandar Puteri Puchong has seen 70% sale for 1st block. We expect township development with affordable pricing to continue attract demand.

Forecast

• Unchanged.

Rating

• BUY

• Positives: highly liquid proxy to property sector; large war-chest for landbank acquisitions; has exposure to Singapore and China property markets

• Negatives: Prolonged sector headwinds in Malaysia, with Singapore markets at the low point of their cycles.

Valuation

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

Source: Hong Leong Investment Bank Research - 19 Jul 2016