Lower Revenue, Weaker Profit

IOIPG reported a weak of 9MFY18 results which was below market and our expectations. 9MFY18 core net profit fell by 32% to RM483m due to lower revenue from the property development segment (-35% yoy). Taking into consideration the weak results and soft property market environment, we cut our FY18-20E net profit forecasts by 16-23%, imputing lower property sales. In tandem, we have trimmed our 12- month price target to RM1.62, based on a 50% discount to RNAV. Maintain HOLD.

9MFY18 Core Net Profit Fell by 32%, Below Expectations

IOIPG’s 9MFY18 core net profit of RM483m was below expectations – accounting for 56% of street and 53% of our FY18E forecasts. The weaker than expected earnings were due to lower revenue from the property development segment (-35% yoy to RM1.72bn). IOIPG has seen lower progress billings from the development projects in Klang Valley and has fewer units remaining for sale in both its Singapore and Xiamen projects. Notwithstanding the weaker revenue, IOIPG’s 9M18 EBITDA margin has remained robust at 36%. This note marks a transfer of coverage.

Sequentially, Core Net Profit Was 29% Weaker

Sequentially, IOIPG’s 3QFY18 core net profit fell by 29% to RM120m, tracking a 24% decline in quarterly revenue. IOIPG’s 3QFY18 revenue of RM541m was its lowest since 3QFY15. Similarly, the group recorded a weaker 3Q18 EBITDA margin of 29.1%, below its 3-year average of 36%.

Launching Xiamen and Singapore Projects Soon

Notwithstanding the challenging market conditions, IOIPG continues to embark on its marketing efforts to unlock potential sales in Malaysia. On the international front, IOIPG will soon launch the sale of its Xiamen residential projects and the completed Singapore JV projects.

Cutting FY18-20E EPS by 16-23%, Maintain HOLD

We cut our FY18-20E EPS forecasts by 16-23% after incorporating the weak 9MFY18 results and slashing our FY18-20E revenue forecasts by 16-18%, taking into consideration the weak Malaysia property market condition. In tandem, we have lowered our 12-month target price to RM1.62 (from RM1.78) based on an unchanged 50% discount to RNAV. Maintain HOLD. Key upside/downside risks would be stronger/weaker property sales and a recovery/prolonged downturn in the domestic property market.

Source: Affin Hwang Research - 21 May 2018