IOIPG’s 9MFY18 core PATAMI of RM483m (-29% YoY) was below expectations due to lower sales achieved in the absence of big launches. The lower results QoQ and YoY were mainly due to lower sales from ongoing projects and minimal contributions from overseas projects, partially cushioned by higher contribution from property investment segment. Unbilled sales remained at 0.27x cover while new sales (RM1.5bn) as of 9MFY18 are likely to fall short of full year target (RM2.8bn). We lower our FY18/FY19/FY20 earnings by 19%/15%/10%, respectively to reflect lower sales and delay in launches. Maintain BUY rating at lower RNAV-based TP (35% discount) of RM2.44 (from RM2.50).

Below expectations. 9MFY18 revenue of RM2.1bn translated into a core PATAMI of RM483.0m, accounting for 54.7% and 56.3% of HLIB and consensus full year forecasts, respectively.

Deviation. Mainly due to lower sales achieved in the absence of big launches.

Dividend . None (3QFY17: None).

QoQ. 3Q18 revenue declined by 23.5% as due to lower sales and lower progressive billings from fewer ongoing projects. In the meantime, core PATAMI dropped by 28.7% in tandem with lower revenue.

YoY. Revenue dropped by 39.6% mainly due to lower profit contribution from development projects in Malaysia as well as lesser units remaining for sale in both Trilinq, Singapore and D3 Residence, Xiamen. As a result, core PATAMI declined by 53.4%, after adjusted for forex gain/loss and the additional buyer stamp duty.

9MFY18. Core PATAMI was down by 29.2% on the back of lower revenue (-29.1%) due to lower contribution from property development from overseas projects in Singapore and China, partially cushioned by higher contribution from property investment segment.

Outlook. A stronger 4QFY18 can be expected should soft launches in both Xiamen 2 (total GDV: ~Rmb2bn) and Sentosa Cove (effective GDV: ~SGD900m) could contribute in time, barring any unforeseen delays.

FY18 sales may fall short. FY18 sales may fall short of the full year target of RM2.8bn given that YTD sales only amounted to RM1.5bn (3QFY18: RM370m) with 39% from international sales, largely contributed by Trilinq Singapore. Unbilled sales down to RM990m (from RM1.3bn in 2QFY18), representing a cover ratio of only 0.27x.

Forecast. We lower our FY18/FY19/FY20 earnings by 19%/15%/10%, respectively to reflect lower sales and delay in launches.

Maintain BUY with a lower TP of RM2.44 (from RM2.50), based on unchanged 35% discount to RNAV of RM3.75 (was RM3.84) after taking in account the revision in our estimation parameters. IOIPG remains a value stock with huge land bank and investment properties on the back of attractive book value at 0.5x (industry average of 0.8x), reinforced by the its maturing investment properties and strong track record.

Source: Hong Leong Investment Bank Research - 21 May 2018