IOIPG’s FY18 core PATAMI of RM673m (-30% YoY) was below expectations due to lower sales achieved in the absence of big launches. Declared dividend of 5.0 sen per share. Lower YoY results were mainly due to minimal contributions from overseas projects. Unbilled sales represent 0.28x cover while new sales (RM1.9bn) fell short of target. Stronger FY19 can be expected with higher contribution from Xiamen while domestic contributions are expected to be stable. We lower our FY19/FY20 earnings by 12%/14% to reflect the delay in launches. Maintain BUY rating at unchanged RNAV-based TP of RM2.25.

Below expectations. FY18 revenue of RM2.79bn translated into a core PATAMI of RM673.0m which was below ours and consensus full year earnings expectations at 93.6% and 88.9%, respectively. The deviation was mainly due to lower sales achieved in the absence of big launches especially overseas.

Dividend. Declared dividend of 5.0 sen per share (FY17: 6.0 sen), going ex on 13 Sept 2018, yielding 2.8% at current price.

QoQ. 4QFY18 revenue rose 24.5% given the higher progressive billings of ongoing projects. In the meantime, core PATAMI improved by a higher magnitude of 58.8%, thanks to lower selling and marketing expenses and higher other operating income, after excluding the fair value gain and forex loss.

YoY. Revenue dropped by 39.6% mainly due to lower profit contributions from development projects in Malaysia as well as lesser units remaining for sale in both Trilinq (Singapore) and D3 Residence (Xiamen). Consequently, core PATAMI declined by 53.4% with lower margin achieved due to high base effect from the downward cost adjustment from the completion of Trilinq project in 4QFY17.

FY18. Core PATAMI was down by 30.2% on the back of lower revenue (-33.3%) due to lower contribution from property development from overseas projects both in Singapore and China, partially cushioned by higher contribution from property investment segment.

FY18 total sales of RM1.9bn (4QFY18: RM403m) fell short of the initial target of RM2.8bn due to minimal contribution from Xiamen, which contributed to 9% of total sales only. Domestic sales made up 61% of the FY18 sales while the remaining was from Trilinq, Singapore. Unbilled sales was down to RM648m (from RM990m in 3QFY18), representing a cover ratio of only 0.28x.

FY19 outlook. Stronger earnings can be expected with higher contribution from the planned launches in Xiamen 2 and 3 with a combined GDV of Rmb2bn as well as improving property investment and leisure and hospitality segments. In Singapore, we understand that management is re-evaluating the market before deciding on the launching of its Sentosa Cove project following the cooling measure taken by the government. In terms of FY19 sales, management is eyeing a target of RM2bn.

Forecast. We lower our FY19/FY20 earnings by 12.2%/14.0%, respectively to reflect the delay in launches of its Sentosa Cove project in Singapore as well as minor model up keeping adjustments.

Maintain BUY with unchanged TP of RM2.25, based on unchanged 40% discount to RNAV of RM3.75. 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 a strong track record.

Source: Hong Leong Investment Bank Research - 28 Aug 2018