IOIPG’s 1HFY19 core PATAMI of RM365.6m was above expectations. The company registered higher profits YoY/YTD which was largely attributed to higher operating profits from Xiamen and increased JV contributions from the South Beach project. 1HFY19 sales of RM1bn is on course to meet full year target of RM2bn. Unbilled sales declined to RM567m from RM859m in 1QFY19, representing a cover ratio of 0.25x. We understand that over Rmb6bn worth of GDV are expected to be launched over the next 3 years to sustain profit moving forward. We increase our forecasts by FY19: 3.6%, FY20: 4.8% and FY21: 4.6% and maintain our BUY rating at TP of RM2.25.

Above expectations. 1HFY19 revenue of RM1590.2m translated into a core PATAMI of RM365.6m which was within ours and consensus full year earnings expectations at 51.9% and 54.2%, respectively. We deem the results to be above expectations as we expect JV contributions to remain strong in 2HFY19. No dividends were declared.

QoQ. Revenue increased by 18.9% to RM666.2m (from RM560.1m) on the back of higher contributions from the property segment. Consequently, core PATAMI rose by 30.1% to RM202.5m (from RM156.7m) in tandem with revenue and higher JV contributions from the project in Singapore (South Beach).

YoY. Revenue decreased by 5.8% from RM707.4m due to lower contributions from the property segment. On the other hand, core PATAMI rose by 20.6% from higher operating profits from the Xiamen project and increased JV contributions from the South Beach project.

YTD. Revenue decreased by 24.1% from RM707.4m due to lower sales from Singapore arising from fewer units remaining for sale in Trilinq. Consequently, core PATAMI decreased by 14% in tandem with revenue but was supported by higher operating profits from the Xiamen project and increased JV contributions from the South Beach project.

2QFY19 total sales of RM462m (1QFY19: RM574m) are on course to meet full year target of RM2bn with 56% of sales from local, 41% from China and 3% from Singapore. Unbilled sales declined to RM567m from RM859m in 1QFY19, representing a thin cover ratio of 0.25x.

Xiamen, China. We understand that over Rmb6bn worth of GDV are expected to be launched over the next three years to sustain profit moving forward. Management is currently launching projects in Xiamen 2 gradually while launches for Xiamen 3 are anticipated to begin 4Q19.

Outlook. Despite the thin unbilled sales cover ratio, FY19 earnings should be anchored by projects from China with further potential launches. Besides, improving property investment and leisure and hospitality segments can be expected with higher occupancy rate and positive rental reversions for its malls and offices. In Singapore, we understand that management is still re-evaluating the local market sentiment deciding on the launching of its Sentosa Cove project.

Forecast. We increase our forecasts by FY19: 3.6%, FY20: 4.8% and FY21: 4.6% as we factor in higher JV contributions moving forward.

Maintain BUY with unchanged TP of RM2.25, based on unchanged 40% discount to RNAV of RM3.75. IOIPG remains a deep value stock with huge land bank and investment properties on the back of attractive book value at 0.5x (industry average of 0.7x), reinforced by the its maturing investment properties and a strong track record.

Source: Hong Leong Investment Bank Research - 27 Feb 2019