IOIPG’s FY21 core earnings of RM665.4m (-5.3% YoY) were above our expectation. The group chalked in a better performance in property development sales but this was offset by higher COGS from the low margin products. Sales of RM2.3bn (+25% YoY) were achieved in FY21 as well as launches worth RM1.9bn. We increase our forecast by 5% and 8% in FY22-FY23 from higher contribution of property development and new recurring income from the new mall in China. We maintain our BUY recommendation with a higher TP of RM1.79 (from RM1.77) based on discount of 60% to a RNAV of RM4.48.

Above expectation. IOIPG reported 4QFY21 core PATMI of RM163.6m (-9.7% QoQ, -19.5% YoY); this brought FY21’s sum to RM665.4m (-5.3% YoY). The results beat our expectation at 109% (attributed to better sales performance from Malaysia operations) but inline at 104% of consensus forecast. FY21 core PATMI sum has been arrived after excluding RM5.2m of EIs (+RM130m reversal of inventories written down in value of Cape Royale in Singapore and +RM44.8m forex gain offset the - RM71m fair value loss and -RM109m property development costs written down).

Dividend. Declared single interim tier dividend of 2.0 sen per share (FY20: 1.5 sen) going ex on 13 Sept 2021.

QoQ/YoY/YTD. Despite chalking in higher revenue (+13.8% QoQ, +7.9% YoY, +17.6% YTD) mainly from higher sales from Malaysia operation (+15.4% QoQ, +6.5% YoY, +25% YTD), core PATMI was lower (-9.7% QoQ, -19.5% YoY, -5.3% YTD) dragged by the lower margin product mix.

New sales of RM741.9m were achieved in 4QFY21, bringing FY21 sales to RM2.3bn (+25% YoY) with 61% stemming from Malaysia, 38% from China and 1% from Singapore. Meanwhile, GDV worth RM1.9bn of products was carried out as of FY21. c.RM300m worth of GDV was launched in China and has garnered >90% take up rate while the rest of the launches were from various township in Malaysia (such as Bandar Puchong Jaya, IOI Resort City, Bandar Putra Kulai, etc) with take up rate 40- 60%. Unbilled sales stood at RM809.9m (+26% QoQ), which is a cover ratio of 0.38x.

Outlook. In China, the construction of the residential developments in IOI Palm City, Xiamen has been completed during the current quarter and will contribute to the Group’s financial performance in FY22. IOIPG still has over RMB3bn worth of products which will be launched over the next 2-3 years. Meanwhile, IOI Palm City Mall, Xiamen has secured high levels of occupancy (70-80%) and is expected to provide recurring income stream for the group in the future. Closer to home, management targets to achieve 80-90% vaccination by end of 3Q and should be able to ramp up its construction activities in tandem with the higher workforce (in line with the recent reopening measures). Overall, we believe IOIPG will remain resilient due to its diversified operation from the exposure to China properties.

Forecast. We increase our forecast by 5% and 8% in FY22-FY23 from the expectation of higher contribution of property development and new recurring income from the new mall in China.

We maintain our BUY recommendation with a higher TP of RM1.79 (from RM1.77) based on discount of 60% to a RNAV of RM4.48 as we make changes to our earnings base. 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 trades at a P/B valuation of 0.3x (below -2SD of its 5-year mean) despite generating consistent earnings during the ongoing pandemic.

Source: Hong Leong Investment Bank Research - 27 Aug 2021