IOIPG’s FY19 core PATMI of RM640.5m (-5.1% YoY) were below expectations largely due to higher than expected effective tax rate. New sales of RM548.7m in 4Q19 brings FY19 total sales to RM1.9bn, which is in line with management’s sales target of RM1.8bn-RM2bn. We understand that over RMB7bn worth of GDV are expected to be launched over the next three years to sustain profit moving forward. We lower our FY20/21 forecasts by 9.2%/8.1%, respectively and maintain our BUY call with a lower TP of RM2.04 (from RM2.25), based on a higher discount at 45% (from 40%) discount to RNAV of RM3.70

Below expectations. IOIPG reported 4QFY19 core PATMI of RM111m (-35.2% QoQ, -41.6% YoY), which brings the FY19 sum to RM 640.5m (-5.1% YoY). This formed 88% of our and consensus full year forecasts. The results were below expectations largely due to higher than expected effective tax rate.

Dividends. Declared interim dividend of 3.0 (4Q18: 5.0) sen per share, going ex on the 17 Sep 2019.

QoQ. Revenue remained relatively flat at RM497.8m (+2.1%) while core PATMI decreased -41.6% to RM111m. The decrease in core PATMI is largely attributed to lower contributions from the share of JVs (recognition of South Beach Residences in Singapore in the preceding quarter) coupled with a higher effective tax rate.

YoY. Core PATMI fell -41.6% in tandem with revenue (-26.1%) coupled with higher effective tax rate.

YTD. Revenue decreased -21.2% to RM2,211.7m (from RM2131.4m) due to lower contributions from overseas operations i.e. The Trilinq in Singapore. However, core PATMI decreased by only -5.1% from higher JV contributions from the South Beach project back in 1Q19.

New sales of RM548.7m in 4Q19 brings FY19 total sales to RM1.9bn, which is in line with management’s sales target of RM1.8bn-RM2bn. FY19 sales composition was made out of 58% Malaysian, 39% China, 3% Singapore. FY20 sales target will be known in 1Q20 but we reckon that it will likely be flat. Unbilled sales stood at RM609.7m, 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.RMB2.9bn in FY20.

Outlook. Despite the thin unbilled sales cover ratio, FY20 earnings should be anchored by projects from China with further potential launches. However, we note that launches moving forward in the Malaysian market will likely be of lower margins as the property market remains soft.

Forecast. We lower our FY20/21 forecasts by 9.2%/8.1% respectively as we impute slower launches alongside a lower margin product mix moving forward.

Maintain BUY with a lower TP of RM2.04 (from RM2.25), based on a higher discount at 45% (from 40%) discount to RNAV of RM3.70 to reflect the change in our forecasts and planned launches moving forward. Nonetheless, IOIPG remains a deep value stock with huge land bank and investment properties on the back of attractive P/B at 0.3x (industry average of 0.7x), reinforced by the its maturing investment properties and a strong track record.

Source: Hong Leong Investment Bank Research - 30 Aug 2019