IOIPG reported 1QFY20 core PATMI of RM175.5m (+58.1% QoQ, +12.7% YoY), forming 24.8% and 26% of our and consensus full year forecasts. We note that the 1QFY20 results were supported by the recognitions of the South Beach Residences which is lumpy. 1QFY20 new sales of RM390m comprises of 56% Malaysian and 44% Chinese projects. Management maintains a flat sales target for FY20 of RM1.8bn-RM2bn. Unbilled sales stood at RM750m, representing a cover ratio of 0.46x. We maintain our forecasts and BUY call with an unchanged TP of RM2.04 based on a 45% discount to RNAV of RM3.71.

Within expectations. IOIPG reported 1QFY20 core PATMI of RM175.5m (+58.1% QoQ, +12.7% YoY), forming 24.8% and 26% of our and consensus full year forecasts, respectively. We remain conservative and deem this within expectations as 4Q may not continue registering seasonally strong results. This was seen in 4QFY19 which registered weaker results as opposed to the historical trend of being seasonally stronger. We also note that the 1QFY20 results were supported by the recognition of the South Beach Residences which is lumpy.

Dividends. None Declared.

QoQ. Revenue increased 8.5% to RM540.3m largely due to improved progressive billings recognition. Subsequently, core PATMI rose 58.1% to RM175.5m in tandem with revenue supported by improvements in JV contributions (i.e. largely South Beach Residences in Singapore) which recorded a profit of RM48.8m as compared to a loss of RM21.3m in the preceding quarter. As the South Beach Residences is already constructed, earnings recognition will appear lumpy as it is recognised upon payment.

YoY. Revenue remained relatively flat (-3.5%) while core PATMI improved 12.7% largely due to improvements in JV contributions (i.e. South Beach Residences in Singapore).

New sales of RM390m were achieved in 1QFY20 sales comprising of 56% Malaysian and 44% Chinese projects. Management maintains a flat sales target for FY20 of RM1.8bn-2bn. Unbilled sales stood at RM750m, representing a cover ratio of 0.46x which is an improvement from the previous 0.28x as at 4QFY19. In addition, we note that this has not included the sales to be recognised from the Xiamen projects. With regards to China, we understand that over RMB6bn worth of GDV is expected to be launched over the next two to three years (depending on the market) to sustain profit moving forward.

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. Unchanged.

Maintain BUY with an unchanged TP of RM2.04, based on a discount of 45% to RNAV of RM3.71. 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 - 26 Nov 2019