IOI Properties (IOIPG) reported 1QFY19 result that was below expectations. Core net profit declined 18% qoq and 20% yoy to RM156m in 1QFY19. Slower domestic progress billings and lower overseas earnings contribution led to the weaker earnings. We cut our core EPS by 8-11% in FY19-20E. We reiterate our HOLD call with a lower target price (TP) of RM1.80, based on 50% discount to RNAV.

Below Expectations

Net profit of RM112m (-54% yoy) in 1QFY19 comprised only 15-16% of fullyear consensus and our previous forecasts of RM694-727m. We were surprised by net forex loss of RM44m for its overseas operations and the weak progress billings. Revenue fell 36% yoy to RM560m due to lower sales for The Trilinq condominium project in Singapore (less units to sell) and lower sales for its domestic projects as it focuses mainly only selling completed units.

Shrinking Revenue

Revenue contracted 17% qoq and 36% yoy to RM560m due partly to slower progress billings for local projects. Contribution for overseas property projects eased due to lower contribution from Singapore projects in 1QFY19.

Robust Sales

IOIPG secured robust pre-sales of RM574m in 1QFY19 and is targeting to launch RM2.0-2.2bn worth of new projects in FY19 (46% of total in Malaysia, 5% in Singapore, 49% in Xiamen, China). On the international front, its recent launch of high-rise residential development in IOI Palm City, Xiamen worth RMB650m received strong take up rates. It is cautious on new launches in Singapore as the government recently introduced new curbs on residential properties.

Lowering Our EPS Forecasts, But Lifting Our Target Price

We cut our FY19-20E EPS by 8-11% to reflect lower revenue and profit margins, given the weak Malaysian property market, while the Singapore market is facing challenges. Unbilled sales of RM859m should support earnings in FY19E. We cut our 12-month TP to RM1.80 (RM1.94 previously), based on a 50% discount to RNAV of RM3.61 (RM3.88 previously). Maintain HOLD. Upside risk: stronger property sales; downside risk: a prolonged downturn in the domestic property market.

Further launches planned

IOIPG will continue to launch properties for its existing local projects. There will be further launches of properties in Xiamen and Xiang An in China over the next 2 years with gross development value of RMB2bn. It also plans to launch the residential component for its South Beach project in Singapore in 2QFY19 (50% joint venture).

Source: Affin Hwang Research - 26 Nov 2018