IOIPG reported 3QFY20 core PATMI of RM82.2m (-52.9% QoQ, -52% YoY), bringing 9MFY20 core PATMI to RM432.1m (-18.4% YoY), forming 77.8% and 63% of our and consensus full year forecasts, respectively. New sales of RM285m were achieved in 3QFY20, bringing 9MFY20 sales to RM1,143m (75% Malaysia, 24% China, and 1% Singapore projects). We cut our FY20/21/22 forecasts by -5.4%/-16.2%/-12.6% and maintain our HOLD rating with an unchanged TP of RM1.05. Our discount rate will be revisited upon signs of the outbreak subsiding on the local front as we note that the unbilled sales cover ratio remains rather thin at 0.3x in addition to the uncertainty of project launches the near-term.

Below expectations. IOIPG reported 3QFY20 core PATMI of RM82.2m (-52.9% QoQ, --52% YoY), bringing 9MFY20 core PATMI to RM432.1m (-18.4% YoY), forming 77.8% and 63% of our and consensus full year forecasts, respectively. We deem it slightly below expectations as 4QFY20 earnings will be impacted by the MCO impact towards all its segments despite the resumption of China operations. 9MFY20 core PATMI sum has been arrived after excluding -RM24.6m of EIs, which includes - RM37.5m of net forex loss and a +RM13m from reversal of payments.

Dividends. None Declared.

QoQ/YoY. Core earnings fell -52.9%/-52% to RM82.2m largely due to a decreased contribution from China where the pandemic first began. On the local front, earnings were also impacted by the decrease in activities amidst the Covid-19 outbreak with the Hospitality and Leisure segment recording an operating loss of -RM15m (from RM8.5m/RM3.8m, respectively).

YTD. Subsequently, 9MFY20 also recorded a drop in core earnings by -18.4% to RM432.1m due to the aforementioned reasons despite 1HFY20 being rather flat YoY.

Malaysia still impacted by Covid-19. Despite the resumption of operations in China which will likely contribute in 4QFY20, we note that the Malaysian operations will be impacted given implementation of MCO. On the Property Investment segment, rebates have been given to tenants of the retail mall on a case to case basis during the MCO period. As such, we expect the slower Malaysian operations to partially offset the potential earnings from China with the biggest drag arising from the Hospitality and Leisure segment (which already reported losses in the recent quarter).

New sales of RM285m were achieved in 3QFY20, bringing 9MFY20 sales to RM1,143m (75% Malaysia, 24% China, and 1% Singapore projects). The figure represents c.60% of the initial sales target of RM1.8bn-RM2bn and we have gathered that it will likely be unmet given the ongoing circumstances. Unbilled sales stands at RM517m, which is a thinning cover ratio at 0.3x (from 0.45x QoQ).

Forecast. We cut our FY20/21/22 forecasts by -5.4%/-16.2%/-12.6% to reflect lower contributions from the Property Investment and Hospitality & Leisure segments coupled with the delay of project launches in both Malaysia and China.

Maintain HOLD with an unchanged TP of RM1.05 based on an unchanged discount of 75% to a RNAV of RM4.21. The Malaysian operations are still badly impacted by Covid-19 and will drag potential contributions from China despite its resumption. 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 on the local front as we note that the unbilled sales cover ratio remains rather thin at 0.3x in addition to the uncertainty of project launches the near-term.

Source: Hong Leong Investment Bank Research - 1 Jun 2020