IOI Properties’ (IOIPG) net profit jumped 22% yoy to RM137m in 1QFY20, driven by better performance for all segments and higher joint venture earnings. The headline net profit lagged behind our expectation, mainly due to an unrealised forex loss of RM54m. Core net profit of RM189m (+21% yoy) in 1QFY20 was above our expectation. We maintain our FY20 earnings forecast but there is potential upside if the earnings momentum is sustained in subsequent quarters. It is trading on an attractive FY20E PER of 10x and PBR of 0.3x. IOIPG remains our top sector BUY with a TP of RM1.82, based on a 50% discount to RNAV.

Strong Core Earnings Growth

IOIPG’s reported net profit of RM137m (+22% yoy) in 1QFY20 comprises 21% of the consensus full-year forecast of RM673m and 20% of our estimate of RM657m. There was an unrealised forex loss of RM54m in 1QFY20 on translation of its US$-denominated loans, which we did not factor into our forecast. Core net profit jumped 171% qoq and 21% yoy to RM189m (29% of our full-year estimate) in 1QFY20, which is ahead of our expectation.

Lower Revenue But Better Profit Margin

Revenue fell 4% yoy to RM540m in 1QFY20 due to slower progress billings for its local projects. Revenue contribution from its Singapore operation was insignificant following the completion of its Trilinq condominium project in FY19. EBIT jumped 48% qoq and 10% yoy to RM243m in 1QFY20, due to higher contribution from its lucrative Xiamen Phase 2 property development project. The higher property development (+12% yoy) and investment (+10% yoy) earnings were partly offset by lower hospitality earnings (-5% yoy). Joint venture earnings surged 6-fold to RM49m in 1QFY20, mainly due to higher contribution from its South Beach Residences project in Singapore.

Encouraging Pre-sales

IOIPG achieved pre-sales of RM390m in 1QFY20 – 66% of total sales from Malaysia and the balance from China. Pre-sales were boosted by the launches of new properties in Xiamen, Warisan Puteri and Bandar Puteri Bangi. Unbilled sales of RM750m will likely shore up revenue in FY20-21.

Top Sector BUY

IOIPG remains our top sector BUY with a 12-month target price of RM1.82, based on a 50% discount to our RNAV/share estimate of RM3.64. Key downside risk: prolonged local property market weakness.

Source: Affin Hwang Research - 26 Nov 2019