IOIPG posted a lower core net profit of RM376m (-21% yoy) in 1HFY18 due to a high base effect in 1HFY17 and fewer remaining property units for sale in Trilinq, Singapore. Results were within expectations. We maintain our earnings forecasts and expect better 2HFY18 earnings driven by new property sales of RM1.13bn and unbilled sales of RM1.25bn, coupled with new planned project launches in Malaysia and China. We reiterate our HOLD call with an unchanged 12M TP of RM2.26.

1HFY18’s Core Earnings Were Within Expectations

The group achieved a core net profit of RM376.4m in 1HFY18, comprising 41-42% of streets’ and our FY18E forecasts of RM901-919m after excluding one-off items and share of impairment loss (RM79.7m) in joint venture in Sentosa Cape Royal project. This was within expectations.

Lower Contribution From Property Development

For 2QFY18, revenue dipped by 40.8% yoy and 18.7% qoq to RM707m due to lower contribution from the property development segment (-46.7% yoy). However, the decline was mitigated by higher contribution from property investment (+5.9% yoy) and leisure & hospitality (+10.4% yoy), which saw better occupancy rates in Putrajaya Marriott Hotel and Le Meridien. Higher occupancy and rental rates for retail have improved its property investment operating income (+10.5% yoy). Both revenue and net profit declined by 25% yoy in 1HFY18 mainly attributable to a high base effect on higher overseas projects contribution.

Sustained Property Sales and Unbilled Sales

IOIPG achieved new property sales of RM1.13bn (40% based on FY17’s sales of RM2.8bn) year-to-date, mainly from Malaysia (59%) Singapore (32%) and China (9%). On the domestic front, management saw a marginal improvement in sales (+RM10m yoy) in 1HFY18. They have recently launched 16Sierra (GDV: RM200m) and plans to launch The Cruise condominium in Bandar Puteri Puchong, town houses in Bandar Puteri Bangi and Warisan Puteri, Sepang, and Xiamen II, China.

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.

Source: Affin Hwang Research - 26 Feb 2018