IOIPG’s 1QFY18 result was above market and our expectations. We were surprised by the net forex gain of RM47m in 1QFY18. Despite lower revenue (-3% yoy), net profit jumped 26% yoy to RM251m in 1QFY18 due to better profit margin as there was higher billings for high-margin local projects. Core net profit is up 6% yoy, which is within our expectation. We expect better 2HFY18 earnings with new planned project launches in Malaysia and China. We reiterate our HOLD call with 12M TP of RM2.26.

Forex Gain

Net profit of RM251m in 1QFY18 comprised 27% of consensus and our FY18E forecasts of RM919-926m. Excluding the forex gain and one-off items, core net profit of RM204m (+6% yoy) in 1QFY18 was within our expectation (22% of our full-year forecast). Net forex gain of RM47m was mainly due to the stronger Ringgit, which gave rise to unrealised forex gain on translation of its foreign currency loans.

Strong Property Sales Contribution

Revenue fell 3% yoy and 27% qoq to RM870m as several projects, such as the Trilinq condominium project, are near completion and most of the revenue recognition was in FY17. EBITDA increased 5% due to lower operating costs that led to EBITDA margin improving to 32.4% in 1QFY18 from 30.8% in 1QFY17. All divisions reported better yoy earnings: property development (+21%), property investment (+16%) and leisure and hospitality (+161%).

Sustained Sales

IOIPG achieved new property sales of RM677m in 1QFY18 and targets to match FY17 sales of RM2.8bn in FY18. IOIPG plans to launch The Cruise condominium in Bandar Puteri Puchong, town houses in Bandar Puteri Bangi and Warisan Puteri, Sepang, and new projects in Xiamen, China. As it plans to launch properties with selling prices of RM600-700k, the ban on launches of high-end properties with prices above RM1m should not substantially affect IOIPG. Better occupancy for its offices improved its property investment income.

Maintain HOLD

We maintain our HOLD call with an unchanged TP of RM2.26 (based on 40% discount to RNAV) given; i) the long gestation period for its new Central Boulevard@Marina Bay project; and ii) demand uncertainty for the group’s planned launches in 2HFY18 given the challenging property market conditions. Key upside/downside risks are stronger/weaker property sales and a recovery/prolonged downturn in the domestic property market.

Source: Affin Hwang Research - 21 Nov 2017