IOIPG’s 1HFY21 core earnings of RM322.6m (-11.4% YoY) were slightly above expectation largely due to higher than expected sales recognition from China. Management has yet to officially announce the FY21 sales and launch targets as they are still assessing the situation. New sales of RM916m were achieved in 1HFY21, with 52% from Malaysia, 46% from China and 2% from Singapore. With regards to launches, RM1.04bn were carried out. Unbilled sales stood at RM477m, which is a cover ratio at 0.23x. We tweak our FY21-23 earnings by 5.8%/4.2%/1.9% respectively and maintain BUY with a slightly higher TP of RM1.77.

Slightly above. IOIPG reported 2QFY21 core PATMI of RM147.4m (-15.9% QoQ, - 21.8% YoY); this brought 1HFY21 core earnings to RM322.6m (-11.4% YoY), forming 55.8% and 53.6% of our and consensus full year forecasts, respectively. The results were slightly above expectation largely due to higher than expected sales recognition from China. 2QFY21 core PATMI sum has been arrived after excluding RM23.6m of EIs (net forex gain). No dividend was declared.

QoQ. Revenue declined 10.4% mainly due to the lower sales of high-rise residential projects from China and lower performance from property investment, hospitality and leisure segments due to re-imposition of CMCO. In turn, core earnings fell 15.9%.

YoY. Revenue rose 4.8% owing to the better performance in property development segment attributable in higher sales performance from China operation; however this was offset by poor performance from its property investment and hospitality & leisure segment. However, core earnings dropped by 21.8% due to lower product margin recognition and higher tax expense (17.6%).

YTD. 1HFY20 recorded a decrease in core earnings by 11.4% YoY due to the aforementioned reasons despite 1HFY21’s revenue registering a growth of 13.3%.

New sales of RM916m were achieved in 1HFY21, with 52% stemming from Malaysia, 46% from China and 2% from Singapore. With regards to launches, RM1.04bn were carried out with slightly more than half in Malaysia and the rest in China. Unbilled sales stood at RM477m, which is a cover ratio at 0.23x.

Outlook. Looking forward, management has yet to officially announce its FY21 sales and launch targets as they are still assessing the situation. We expect management to be able to record similar levels of sales YoY. For perspective, 2QFY21 saw sales and launches forming c.50% of FY20 figures. In China, IOIPG still has over RMB3bn worth of products which will be launched over the next 2-3 years. Despite the thin cover ratio, projects in China are generally launched once construction progress is at least 50%, which in turn directly translates into earnings (upon conversion of bookings to sales). We gather that the market in China is still healthy at this juncture.

Forecast. We tweak FY21-23 earnings by 5.8%/4.2%/1.9% respectively after imputing stronger launches and sales in its projects in China.

Transfer of coverage; maintain BUY. With the transfer of coverage to our new property analyst, we maintain our BUY recommendation with a marginally higher TP of RM1.77 (from RM1.76) based on an unchanged discount of 60% to a RNAV of RM4.44 as we impute the changes in our earnings. We remain confident on the Group’s outlook given the strong response in its products and potential land banking activities in China coupled ongoing efforts to increase its recurring income base. We also see value in the stock given its ability to heavily outperform its peers over the past quarters during the ongoing pandemic alongside its ability to sustain strong net margins of 20-30%. We see value in the stock as it is priced at a P/B valuation of 0.39x (below -1SD of its 5-year mean) despite generating consistent earnings during the ongoing pandemic.

Source: Hong Leong Investment Bank Research - 23 Feb 2021