IOIPG reported FY20 core PATMI of RM607.9m (-5.1% YoY) which were above expectations largely due to higher than expected sales recognition from China due to a pent-up demand post-lockdown. FY20 recorded sales of RM1,839m (in line with target of RM1.8bn-RM2bn) which came to us as a surprise given the initial expectation of a subdued 4QFY20. Launches worth c.RM2.3bn which consists of 42% in China and 58% in Malaysia in FY20. Management has yet to officially announce the FY21 sales and launch targets for now as they are still assessing the situation. We maintain our forecasts but upgrade our rating to BUY with an unchanged TP of RM1.05 based on an unchanged discount of 75 %. We see deep value in the stock as share price has retraced close to its all-time low of RM0.86 and is priced at a P/B valuation of 0.23x (-3SD of its 5-year mean).

Above expectations. IOIPG reported 4QFY20 core PATMI of RM175.9m (+114% QoQ, +58.4% YoY), bringing FY20 core PATMI to RM607.9m (-5.1% YoY), forming 116% of our and consensus full year forecasts. The results were above expectations largely due to higher than expected sales recognition from China due to a pent-up demand post-lockdown. FY20 core PATMI sum has been arrived after excluding - RM152.5m of EIs, largely stemming from -RM135m of impairments and write offs, - RM30m of net forex loss and +RM13m from reversal of payments.

Dividends. Declared interim dividend of 1.5 (4QFY19: 3.0) sen per share, going ex on the 13 Oct 2020.

QoQ/YoY. Core earnings rose +114%/+58.4% to RM175.9m largely due to increased contribution from China due to a pent-up demand post-lockdown. On the local front, earnings were dragged by the decrease in activities amidst the Covid-19 outbreak with the Hospitality and Leisure segment recorded an operating loss of -RM20m.

YTD. FY20 core earnings recorded marginally lower (-5.1% YoY) at RM607.9m despite the Covid-19 outbreak largely due to a much stronger 4QFY20 which offset the shortfall from 3QFY20 (which was hit the hardest due to its exposure in China).

New sales of RM696m were achieved in 4QFY20, bringing FY20 sales to RM1,839m (61% Malaysia, 38% China, and 1% Singapore projects). This was in -line with the initial sales target of RM1.8bn-RM2bn which came to us as a surprise given the initial expectation of a subdued 4QFY20. FY20 saw launches worth c.RM2.3bn which consists of 42% in China and 58% in Malaysia. Unbilled sales stood at RM606m, which is a cover ratio at 0.4x.

Outlook. Looking forward, management has yet to officially announce the FY21 sales and launch targets for now as they are still assessing the situation. In China, IOIPG still has c.RMB3.6bn worth of products which will be launched over the next 2-3 years. 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. We expect the slower Malaysian operations to partially offset the potential earnings from China with some drag in earnings arising from the Hospitality and Leisure segment

Forecast. Unchanged despite results coming above expectations as we choose to remain conservative for now pending further clarity on launch trends. Upgrade to BUY (from HOLD) with an unchanged TP of RM1.05 based on an unchanged discount of 75% to a RNAV of RM4.21. We see deep value in the stock as share price has retraced close to its all-time low of RM0.86 (back in March 2020) and is priced at a P/B valuation of 0.23x (-3SD of its 5-year mean). Notably, IOIPG is the only property counter under our coverage which reported strong growth in core earnings (QoQ and YoY) in the latest quarter in vis-à-vis some which recorded losses.

Source: Hong Leong Investment Bank Research - 1 Sept 2020