Capital raising

IOIPG’s net profit jumped 64% yoy on higher sales for its property development projects in Singapore and Xiamen, PRC and progress billings for ongoing projects. This was within market and our expectations. Property investment operating profit was higher (+80% yoy) driven by rising occupancy and higher rental rates for its IOI City Mall. We reiterate our BUY call with RM2.89 target price, based on 40% discount to RNAV. But the proposed rights issue could lead to share price consolidation in the medium term.

In line with expectations

IOIPG’s net profit of RM190m in 1QFY17 comprise 24% of full-year consensus forecast of RM789m and our estimate of RM795m. Revenue jumped 51% yoy to RM900m, driven by the surge in property development revenue (+58% yoy) and higher property investment revenue (+17% yoy). We believe IOIPG also benefited from the translation of earnings from its Singapore operations due to the weaker Ringgit. Despite the lower EBITDA margin of 30.1% (compared to 37.5% in 1QFY16), net profit increased 64% yoy on the back of the higher revenue and lower effective tax rate. IOIPG’s domestic property development sales were from its IOI Resort City and Warisan Puteri@Sepang projects. IOI City Mall saw occupancy rates improve to 94% in 1Q17 from 88% in 1Q16 and upward rental rate revision.

New Singapore land acquisition concern

IOIPG successfully tendered for a parcel of leasehold land at Central Boulevard in Singapore measuring 1.09 ha for a tender consideration of SGD2.57bn (RM7.77bn) from the Urban Redevelopment Authority. The land tender is expected to be completed in 1QCY17. The high capital commitment will see IOIPG gearing up for the acquisition and it has proposed a 1-for-4 rights issue of new shares at issue price of RM1.38 to raise up to RM1.53bn. The development of the project could see a long gestation period, though it is an opportunistic acquisition given the current slowdown in the Singapore property market.

Long-term BUY

We maintain our long-term BUY call on IOIPG with a 12-month target price of RM2.89, based on 40% discount to RNAV. Risk to our call would be higher financing costs for its new land bank acquisition in Singapore and a prolonged downturn in the domestic property market

Source: Affin Hwang Research - 23 Nov 2016