IOIPG reported 2QFY20 core PATMI of RM174.4m (-0.6% QoQ, -13.9% YoY), forming 49.5% and 51% of our and consensus full year forecasts. New sales of RM485m were achieved in 2QFY20 sales, bringing 1HFY20 sales to RM875.8m which comprises of 74% Malaysia, 24% China, and 2% Singapore projects. We cut our FY20-22 forecasts by -14%-15.4% to reflect the postponement of China projects and slowdown in handover of Singaporean property sales amidst the ongoing Covid-19 outbreak. Downgrade to HOLD with a lower TP of RM1.20 (from RM2.04), based on a higher discount at 70% (from 45%) to RNAV RM4.01 to reflect the heavily impacted Chinese market with uncertain timing of a recovery in the near-term.

Within expectations. IOIPG reported 2QFY20 core PATMI of RM174.4m (+4.4% QoQ, -15.3% YoY), bringing 1HFY20 core PATMI to RM349.9m (-2.3% YoY), forming 49.5% and 51.0% of our and consensus full year forecasts, respectively. 1HFY20 core PATMI sum has been arrived after excluding -RM13.8m of EIs, which mainly includes -RM26.7m of net forex loss and a +RM13m from reversal of payments.

Dividends. None Declared.

QoQ. Core earnings remained flat at RM174.4m (-0.6%) as the lower share of JV contributions (1QFY20 was supported by the recognition of South Beach Residences in Singapore) was offset by a lower effective tax rate.

YoY. 2QFY20 recorded lower earnings of -13.9% largely due to the decrease in contributions from the property development segment and share of JV contributions which was partially cushioned by a lower effective tax rate.

YTD. 1HFY20 core earnings stayed relatively flat at RM349.9m (-2.3%) as the lower contribution from the property development segment was offset by improved share of JV contributions.

New sales of RM485m were achieved in 2QFY20, bringing 1HFY20 sales to RM875.8m which comprises of 74% Malaysia, 24% China, and 2% Singapore projects. Management chooses to maintain its sales target RM1.8bn-RM2bn for FY20, but we anticipate a revision downwards in 3QFY20 as the COVID-19 will heavily impact the initially anticipated launches and sales from China.

Massive hit from Covid-19. Construction works and sale activities for c.RM800m worth of launches from China were supposed to take place in 2HFY20 and have now been put to halt due to the outbreak. With the thin unbilled sales ratio of 0.45x, earnings visibility moving forward is now heavily affected given the absence of progressive billings from China launches. Note that almost half of FY20 property development earnings was initially planned to stem from China projects. Construction works and sale activities will also likely require a window period after the outbreak subsides, which leads to further uncertainty towards the timing resumption of the projects.

Forecast. We cut our FY20-22 forecasts by -14%-15.4% to reflect the postponement of China projects and slowdown in handover of Singaporean property sales amidst the ongoing outbreak.

Downgrade to HOLD (from Buy) with a lower TP of RM1.20 (from RM2.04) following the earnings cut and a higher discount at 70% (from 45%) to a RNAV of RM4.01 to reflect the heavily impacted Chinese market with the uncertainty of its recovery in the near-term. Despite being a deep value stock, we expect share price to remain subdued until improvements in the Covid-19 outbreak can be seen. Our discount rate will be revisited upon signs of the outbreak subsiding.

Source: Hong Leong Investment Bank Research - 26 Feb 2020