IOIPG’s FY22 core PATAMI of RM715m (+7.9% YoY) were within expectations. Commendable results this quarter mainly stemmed from recovering footfall in malls which cushioned the weaker property sales from China. We believe the group’s well established strategy of spreading property development in Malaysia, Singapore and China should help to mitigate the near term weakness in China’s property market. In addition, the opening of IOI City Mall Phase 2 as well as the upcoming completion of Central Boulevard should provide the group with stable recurring income. Maintain BUY with an unchanged TP of RM1.54 based on discount of 65% to a RNAV of RM4.41.

Within expectations. IOIPG reported 4Q22 core PATAMI of RM201.5m (-18.2% QoQ; +28.1% YoY) which brings FY22’s sum to RM715m (+7.9% YoY). The results was within our (97.4%) and consensus (100.7%) expectations. FY22 core PATAMI was arrived at after excluding net EIs of +RM28.2m which includes mainly (i) FV gain on investment properties (RM48.9m); (ii) disposal gain of subsidiary Hartawan Development which owned plantation lands (RM86m); and (iii) property development costs written down (RM171.2m) mainly from Xiang’an mall.

Dividend. None. FY22: None (FY21: 2 Sen).

QoQ. Revenue declined -3% mainly due to lower contribution from property development (-7.4%) arising from lower property sales in China, but this was partially mitigated by improvement in property investment (+9.1%) due to recovering footfall in Malaysia mall following easing of restrictions and borders reopening. Despite the decline in revenue, core PATAMI increased by +18.2% mainly due to lower taxation of RM99.8m (-35.6% from RM155.1m).

YoY/YTD. Revenue increased by +8.7% YoY and +4.1% YTD mainly attributable to better contribution from property investment segment as a result of (i) commencement of recurring lease income from IOI Mall, Xiamen which began operations since 28 Oct 2021; and (ii) recovering footfall in Malaysia mall. Consequently, core PATAMI increased by +28.1% YoY and +7.9% YTD in line with top line improvement.

Sales and launches. IOIPG recorded 4Q22 sales of RM616m (+47.4% QoQ; -17% YoY) bringing FY22 cumulative sales to RM1.93bn (-16.1% YoY), making up 83.9% of its FY22 sales target. From FY22 sales, 77% were from Malaysia (vs. 61% SPLY), while 23% were from China (vs. 38% SPLY) projects. New launches for 4Q22 was RM142.7m, bringing FY22 total launch to RM1.3bn (-31.6% YoY), making up only 65% of its launch target. The group was prudent in its FY22 launches given the elevated building material costs and the weak property sentiment in China. Unbilled sales as at 4Q22 stood at RM605m (+12.7% QoQ from RM537m in 3Q22), representing a 0.29x cover ratio of its FY21 property development revenue.

Outlook. IOIPG recorded commendable results this quarter mainly stemmed from recovering footfall in malls which cushioned the weaker property sales from China. Looking ahead, domestically, IOI City Mall Phase 2 will commence operations on 25 Aug, adding 1m sqft NLA to the mall, which brings total NLA to 2.5m sqft, making it the largest shopping mall in Malaysia. The launch of this new phase is just in time to capture the recovering footfall to retail malls in Malaysia. In Singapore, the construction of IOI Central Boulevard Towers (grade A office) is slated to be completed in 2HCY23. The office space should be well received given (i) its strategic location well connected to MRT stations; and; (ii) the rising prominence of Singapore as a regional financial hub which augurs well for office space demand. In China, we expect that the weak property sentiment may soon see an inflection point in 2HCY22 following several positive key developments, including (i) the recent interest rate cut; (ii) the slowly easing Covid-zero policies; and (iii) regulators’ plan to provide liquidity support through guarantees for developer’s onshore bond issuances. More policy support may be rolled out for the property market, especially given that the upcoming Party Congress will be held soon in Oct.

Forecast. Unchanged

Maintain BUY with an unchanged TP of RM1.54 based on discount of 65% to a RNAV of RM4.41. We believe the group’s well established strategy of spreading property development in Malaysia, Singapore and China should help to mitigate the near term weakness in China’s property market. In addition, the opening of IOI City Mall Phase 2 as well as the upcoming completion of Central Boulevard should strengthen its property investment segment, providing the group with stable recurring income.

Source: Hong Leong Investment Bank Research - 23 Aug 2022