IOIPG’s 9MFY19 core PATMI of RM529.5m was within our expectations but slightly above consensus. The company registered higher profits YoY/YTD which was largely attributed to increased JV contributions from the South Beach project. 9MFY19 sales of RM1.38bn is on course to meet full year target of RM1.8bn-RM2bn. Unbilled sales improved to RM637.9m from RM567m in 2QFY19, representing a cover ratio of 0.28x. We understand that over Rmb6bn worth of GDV are expected to be launched over the next 3 years to sustain profit moving forward. We maintain our forecast and BUY rating at TP of RM2.25.

Within expectations. 9M19 revenue of RM1714m translated into a core PATMI of RM365.6m which was within ours but slightly above consensus full year earnings expectations at 72.6% and 75.9%, respectively. We note that 4QFY19 is seasonally a stronger quarter. No dividends were declared.

QoQ. Revenue decreased -26.8% to RM487.7m (from RM666.2m) on the back of lower contributions from the property segment. Consequently, core PATAMI fell - 15.4% to RM171.3m (from RM202.5m) in tandem with revenue, cushioned by lower effective tax rate and higher JV contributions from the South Beach project.

YoY. Revenue decreased by -4.5% from RM510.5m due to lower contributions from the property segment. On the other hand, core PATMI rose by 4.3% from RM164.3m due to higher operating profits from the Xiamen project and increased JV contributions from the South Beach project.

YTD. Revenue decreased -19.6% to RM1,714m (from RM2131.4m) due to lower contributions from overseas operations i.e. The Trilinq in Singapore. However, core PATMI rose 9.1% contributed by higher JV contributions from the South Beach project.

3QFY19 total sales of RM345.5m (1HFY19: RM1bn) are on course to meet full year target of RM1.8bn-RM2bn with 58% of sales YTD from local, 40% from China and 2% from Singapore. Unbilled sales improved to RM637.9m from RM567m in 1QFY19, but still representing a thin cover ratio of 0.28x. However, we note that this has not included the sales to be recognised from the Xiamen projects.

Xiamen, China. We understand that over RMB7bn worth of GDV are expected to be launched over the next three years to sustain profit moving forward. Management is targeting to launch projects worth c.RMB1bn in 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.

Forecast. Unchanged.

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 P/B at 0.4x (industry average of 0.7x), reinforced by the its maturing investment properties and a strong track record.

Source: Hong Leong Investment Bank Research - 28 May 2019