Weak Core Earnings

IOIPG’s headline net profit of RM784m (-15% yoy) in FY18 was within expectations. Net exceptional gain of RM85m lifted the bottom line. However, core net profit plunged 34% yoy to RM673m in FY18, mainly due to lower property development earnings. We trim our EPS by 2- 4% in FY19-20E to reflect slower property sales. We revise up our TP to RM1.94 (based on 50% discount to RNAV) from RM1.62 previously to reflect higher valuation for investment properties. Maintain HOLD.

Within Expectations

Net profit of RM784m in FY18 is close to consensus and our forecasts of RM757m and RM739m respectively. Revenue fell 33% yoy to RM2.79bn in FY18 due to lower contribution from projects in Klang Valley and overseas. Core net profit was 34% yoy lower as several major projects were at the tail end of development. Fair value gain of RM165m for its investment properties, partly offset by forex losses of RM90m, boosted 4QFY18 earnings to RM265m (+59% qoq). However, net profit declined 21% yoy in 4QFY18 due to lower contribution from overseas projects such as Trilinq in Singapore and D3 Residence in Xiamen, China. EBITDA margin eased 1.1ppt to 35% in FY18, mainly due to lower profit margin for its property development arm. This note marks a transfer of coverage.

Launching Xiamen Project Soon

Notwithstanding the challenging market conditions, IOIPG continues to embark on its marketing efforts to reduce its unsold units in Malaysia. Inventories increased 15% yoy to RM2.1bn in FY18 due to completion of unsold units. On the international front, IOIPG will soon launch new Xiamen residential projects. It is cautious on new launches in Singapore as the government recently introduced new curbs on residential properties.

Trim EPS Forecasts But Lift Target Price

We cut our FY19-20E EPS forecasts by 2-4% to reflect lower revenue and profit margin, considering the weak Malaysian property market condition. We introduce our FY21E EPS, expecting a 10% yoy decline as some of its JV ongoing projects reach its tail end. But we raise our RNAV/share estimate to RM3.88 from RM3.23 to reflect the higher FY18 book value for investment properties, partly offset by higher net debt. Based on the same 50% discount to RNAV, we lift our 12-month TP to RM1.94 from RM1.62. 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 - 28 Aug 2018