IOIPG’s 9MFY21 core earnings of RM505.1m (+1.2% YoY) were within expectation. The group chalked in a better performance in property development but this was partially offset by weak performance in their property investment and hospitality & leisure segment. New sales of RM1.6bn were achieved in 9MFY21 as well as launches worth RM1.4bn. Unbilled sales stood at RM641m, which is a cover ratio of 0.39x. We maintain our forecast as well as BUY recommendation with an unchanged TP of RM1.77 based on discount of 60% to a RNAV of RM4.44.

Within expectation. IOIPG reported 3QFY21 core PATMI of RM181.2m (+22.5% QoQ, +93.4% YoY); this brought 9MFY21’s sum to RM505.1m (+1.2% YoY), forming 82.6%/81.5% of our/consensus full year forecast. We deem the results as inline, as we expect a weaker performance in 4QFY21 from their property investment and hospitality & leisure segment given the unavoidable onslaught of MCO3.0. 9MFY21 core PATMI sum has been arrived after excluding RM36.7m of EIs (net forex gain). No dividend was declared.

QoQ. Top line was marginally lower by 2.1% due to lower property investment and leisure & hospitality segment. However, as COGS was lower by 7.3%, gross profit inched up by 3.2%. Core PATAMI recorded an increase by 22.5% contributed to higher share of JVs and associates (+176.4%) but was partially offset by higher other expenses by 21.6%.

YoY. Revenue rose by 44.2% owing to the better performance in property development segment (+71%) attributable to higher sales contribution from both Malaysia and China operations, as well as advance progress work from on-going residential development in China. However this was partially offset by poor performance from its property investment (-11%) and hospitality & leisure (-46%) segment from MCO 2.0. In turn, core earnings increased by 93.4% as higher margin product mix has lifted the core PATAMI margin by 8.0ppts to 31.3%.

YTD. Despite registering higher revenue by 21.5% driven by higher contribution of property development from Klang Valley and China operations, core PATAMI was flattish at 1.2% due to lower margin recognition in the previous two quarters.

New sales of RM642m were achieved in 3QFY21, bringing 9MFY21 sales to RM1.6bn with 61% stemming from Malaysia, 38% from China and 1% from Singapore. Meanwhile, GDV worth RM1.4bn of products was carried out as of 9MFY21 whereby c.29% was from China and the rest in Malaysia. Unbilled sales stood at RM641m, which is a cover ratio at 0.39x.

Outlook. 9MFY21 saw sales and launches forming c.85% of FY20 figures, indicating that the group may exceed their FY20 sales. 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. We gather that the market in China is still healthy at this juncture given its controlled pandemic situation.

Forecast. Unchanged. We maintain our BUY recommendation with an unchanged TP of RM1.77 based on discount of 60% to a RNAV of RM4.44. We like IOIPG 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 0.4x (below -1SD of its 5-year mean) despite generating consistent earnings during the ongoing pandemic.

Source: Hong Leong Investment Bank Research - 28 May 2021