IOI Properties’ (IOIPG) 9MFY19 result was in line market expectations but above ours. Net profit eased 3% yoy to RM522m in 9MFY19 on a higher tax rate. Core net profit grew 6% yoy driven by improved profit margin despite lower revenue. We upgrade our core EPS forecasts by 10-22% in FY19-21E to reflect higher profit margin for its property development projects in Malaysia and China. Attractive FY20E PER of 8x. We upgrade our call to BUY from Hold with lifted target price (TP) of RM1.83, based on 50% discount to RNAV.

Above Our Expectation

IOIPG’s reported net profit of RM522m comprised 75% of market consensus full-year forecast of RM697m and 80% of our previous estimate of RM667m. Revenue fell 19% yoy to RM1.7bn 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 ongoing Malaysian property development projects and revenue was contributed mainly from its completed projects. Revenue in 3QFY19 fell 27% qoq and 4% yoy to RM488m for similar reasons. We expect a pick up in revenue in 4QFY19 as IOIPG launch Phase 3 of its Xiamen mixed development project in China. Its Xiamen project has remaining gross development value (GDV) of about RMB7bn.

Higher Profitability

EBIT increased 10% yoy to RM715m due to higher profit margin on completed unit sales with EBIT margin increasing 10.5 ppt to 42.1% in 9MFY19. The surge in Joint Venture (JV) earnings to RM126m from a loss of 43m boosted its PBT by 17% yoy to RM858m. IOIPG achieved sales of RM1.38bn in 9MFY19 with highest contribution from its Malaysian operation at 58% of total sales. China operation contributed 40% of total sales, while Singapore operation contributed the remaining 2%. This was a 6% yoy decline from the RM1.47bn sales achieved in 9MFY18.

Upgrade to BUY Fom Hold

We upgrade our call on IOIPG to BUY from Hold. The recent correction in share price provides an opportunity to accumulate the stock. Valuations are attractive at current Price/Book of 0.36x and FY20E PER of 8x. We lift our RNAV/share estimate to RM3.66 from RM3.61 as we roll forward the valuation base year to 2020E. Based on the same 50% discount to RNAV, we lift our TP to RM1.83 from RM1.80. Key downside risk is the prolonged weakness for the local property market.

Source: Affin Hwang Research - 28 May 2019