IOIPG’s 9M22 core PATAMI of RM598.3m (+10.9% YoY) were above expectations due to higher-than-expected sales from completed units. We are cautiously optimistic on the group given its well established strategy of spreading property development in China, Singapore and Malaysia. We increase our FY22 forecasts by +9.8% mainly to account for the results beat. Maintain BUY with a lower TP of RM1.54 (from RM1.79) based on a higher discount of 65% (from 60%) to a RNAV of RM4.41. The stock is currently trading at undemanding P/B valuation of 0.3x (roughly -1SD of its 5-year mean). Its property investment segment should improve with the economic reopening, providing the group with stable recurring income.

Above expectations. IOIPG reported 3Q22 core PATAMI of RM170.5m (-22.2% QoQ; -3.3% YoY) which brings 9M22’s sum to RM598.3m (+10.9% YoY) forming 89.4% and 84.6% of our and consensus full year forecasts. The results were above our expectation due to higher-than-expected sales from completed units. 9M22’s sum was arrived at after adding back net EIs of RM119.6m (mainly from project development cost write down of RM111m for launched development project in IOI International Parkhouse, Xiang’an). No dividend was declared.

QoQ/YoY. Revenue was higher (+4.7% QoQ; +27.4% YoY) mainly due to higher sales of completed units in this quarter (estimated 43.5% of property development revenue are from completed units). Despite the top line improvement, core PATAMI was lower (-22.2% QoQ; -3.3% YoY) due to lower share of results from JV and associates as well as higher tax expense.

YTD. Revenue increased marginally by 2.4% mainly attributable to better contribution from property investment segment as a result of commencement of recurring lease income from IOI Mall, Xiamen. Core PATAMI increase by a larger magnitude than t op line by 10.9% due to higher share of results from JV and associates as well as lower tax expense.

Sales and launches. IOIPG recorded 3Q22 sales of RM417.9m (-30.5% QoQ; - 34.9% YoY) bringing 9M22 cumulative sales to RM1.31bn (-17.9% YoY). From 3Q22 sales, 63% were from completed units (vs. new launches and ongoing projects), while 73% were from Malaysia (vs. international projects). New launches for 3Q22 was RM62m, bringing 9M22 total launch to RM1.16bn. Unbilled sales as at 3Q22 stand at RM537m (-31.8% QoQ), representing a 0.25x cover ratio of FY21 property development revenue.

Outlook. We are cautiously optimistic on the group given its well established strategy of spreading property development in China, Singapore and Malaysia. With China lowering interest rates, in part targeting at promoting property development, this will augur well for IOIPG. Domestically, the group will stay focus in developing township which is its forte. The ending of HOC may pose challenge to the group, but given its track record, believe the group will be able to ride through the challenge

Forecast. We increase our FY22 forecasts by +9.8% mainly to account for the results beat while we leave our FY23 and FY24 forecasts unchanged.

We maintain our BUY recommendation with a lower TP of RM1.54 (from RM1.79) based on a higher discount of 65% (from 60%) to a RNAV of RM4.41. The larger discount given is to reflect current cautious sentiments associated with rising interest rates in Malaysia. The stock is currently trading at undemanding P/B valuation of 0.3x (roughly -1SD of its 5-year mean). Its property investment segment should improve with the economic reopening, providing the group with stable recurring income.

Source: Hong Leong Investment Bank Research - 26 May 2022