IOIPG reported 2QFY23 core PATAMI of RM211.1m bringing 1HFY23’s sum to RM411.5m (+19.8% YoY). The results were above our (57.2%) but within consensus (54.8%) expectations. The positive deviation was mainly due to stronger-than-expected contribution from its property investment and hospitality segments. Looking ahead, we expect the group’s China property sales to improve following the relaxation of Covid restrictions in the country. We increase our FY23/FY24/FY25 forecasts by +8.2%/7.9%/5.2% to account for results surprise in FY23 as well as stronger sales assumptions from China for FY23-FY25. Maintain BUY with a slightly higher TP of RM1.60 (from RM1.59) based on 65% discount to RNAV of RM4.58.

Above ours but within consensus. IOIPG reported 2QFY23 core PATAMI of RM211.1m (+5.3% QoQ; -3.6% YoY), bringing 1HFY23’s sum to RM411.5m (+19.8% YoY). The results were above our (57.2%) but within consensus (54.8%) expectations. The positive deviation was mainly due to stronger-than-expected contribution from its property investment and hospitality segments.

EIs. 1HFY23’s core PATAMI’s sum was arrived at after excluding net EIs of - RM630.7m mainly from (i) FV gain of RM470.4m arising from the revaluation of IOI City Mall Phase 2 upon construction completion; (ii) impairment loss on PPE of RM34.9m from the IOI City Mall Phase 2 parking lot; and (iii) reversal of inventories previously written down of RM192.7m included in share of results and JV.

Dividend. None (2QFY22: none). 1HFY23: none (1HFY22: none).

QoQ. Core PATAMI increased by +5.3% mainly due to better performance from its property investment as well as hospitality and leisure segments.

YoY. Revenue declined by -3% mainly due to a decline in property development revenue (-15.9%) partially offset by improvement from property investment (+30.5%) as well as leisure and hospitality (+80%). The decline in property development was due to lower contribution from China due to the stiff competition in the local property market. The improvement in property investment was due to the commencement of IOI City Mall Phase 2 in Aug 2022. Finally, the improvement in hospitality was mainly driven by the recovery in domestic tourism. Consequently, core PATAMI declined by - 3.6%.

YTD. Revenue increased by +19.8% contributed by all segments. Subsequently core PATAMI increased by +19.8% due to (i) improvement in contribution from property investment and hospitality; and (ii) lower tax expenses (-25.5%), but this was partially offset by lower contribution from property development (-19% YoY for the EBIT of this segment due to lower margin as a result of lower China sales).

Sales and launches. IOIPG recorded 2QFY23 sales of RM478m (+6.6% QoQ; - 20.5% YoY), bringing 1HFY23’s sum to RM926.6m (+3.4% YoY), making up 46.3% of its full year sales target. 1HFY23 sales were from Malaysia (86%), China (11%) and Singapore (3%). Completed inventories as at 2QFY23 stood at RM2.5 8bn (-8% QoQ), representing 1.23x cover of its FY22 property development revenue. From the completed inventories, 46% were from China, while 53% were from Malaysia. Unbilled sales as at 2QFY23 stood at RM489.2m (-2.3% QoQ), representing 0.24x cover of FY22 property development revenue.

Outlook. The group recorded another strong quarter. Despite the softness in the China property market during the quarter due to lockdown restrictions, its property sales continue to remain steady, contributed by sales from Malaysia. Its property investment and hospitality continue to show improvement aided by economic and tourism recovery in Malaysia as well as the commencement of IOI City Mall Phase 2. Looking ahead, in China, the relaxation of Covid restrictions should augur well for its property segment given that property buyers can now visit sales gallery and view the completed homes. In Jan, China’s home prices rose for first time in a year by +0.1% MoM vs. -0.2% MoM in Dec, signalling early signs of recovery. IOIPG shared that there is renewed purchase interest for its developments marked by increase in footfall and enquiries in IOI Palm City and IOI Palm International Parkhouse. As at 2QFY23, the group had RM1.19bn completed inventories in China. In Singapore, IOI Central Boulevard is expected to be completed in 1HFY24 and is expected to significantly lift the group’s property investment income moving forward.

Forecast. We increase our FY23/FY24/FY25 forecasts by +8.2%/7.9%/5.2% to account for results surprise in FY23 as well as stronger sales assumptions from China for FY23-FY25.

Maintain BUY recommendation with a slightly higher TP of RM1.60 (from RM1.59) based on 65% discount to RNAV of RM4.58. We like IOIPG as we believe it will benefit from a recovery in China’s home demand. Furthermore, its property investment segment is also strengthening with the opening of IOI City Mall Phase 2 as well as the upcoming completion of Central Boulevard. This should provide the group with a steady stream of recurring income.

Source: Hong Leong Investment Bank Research - 27 Feb 2023