IOI Properties’ 1HFY19 result that was within market and our expectations. Net profit declined 5% yoy to RM327m due to lower revenue. Core net profit was up 1% yoy to RM358m excluding unrealised forex loss of RM32m for its overseas operations. Strong property sales for its China operations partially offset the lower sales in Singapore following as its Trilinq condominium project is at the tail end. We reiterate our HOLD call with TP of RM1.80, based 50% discount to RNAV.

Within Expectations

IOI Properties net profit of RM327m (-5% yoy) in 1HFY19 comprises 48% of market consensus FY19 forecast of RM682m and 52% of our estimate of RM623m. There is potential upside to our earnings forecasts if its earnings momentum sustains in 2HFY19. Revenue fell 22% yoy to RM1.23bn in 1HFY19 due to lower revenue contribution from Singapore as its Trilinq condominium project in Singapore is at the tail end. There was also lower progress billings for its Malaysian projects. The impact was partly offset by strong sales for its Xiamen project in China.

Flat Core Earnings

The higher profit margin due to better product mix sustained core earnings at RM358m (+1% yoy) in 1HFY19 despite the lower revenue. There was higher earnings contribution from its China project and its South Beach Residences joint venture project in Singapore. However, unrealised forex loss of RM32m on translation of overseas operation earnings and higher effective tax rate led to net profit declining 5% yoy to RM327m in 1HFY19. Net profit jumped 92% qoq and 120% yoy to RM215m in 2QFY19 on higher China contribution.

Strong Sales

The group achieved RM1.04bn sales in 1HFY19 with geographical contribution from Malaysia (56% of total), China (41%) and Singapore (3%) operations. This is slightly lower than the RM1.13bn sales achieved in 1HFY18 with geographical contribution from Malaysia (59% of total), China (9%) and Singapore (32%) operations.

Maintain HOLD

IOI Properties is holding up better than some of the other developers despite the weak local property market due to higher earnings contribution from its China operation. Maintain our HOLD call. Key upside risk is strong sales for its upcoming property launches in China. Key downside risk is the local property market remains weak.

Source: Affin Hwang Research - 27 Feb 2019