• IOIPG saw higher revenue (+13% yoy) but lower core earnings (-11% yoy) in 6MFY21, supported by higher China property sales. We raise our core EPS forecasts by 1-3% to reflect higher property development margins
   
• Its leisure and hospitality business incurred an operating loss of RM11m in 6MFY21 due to the impact of the Conditional Movement Control Order (CMCO) imposed since October 2020
   
• We expect a weaker 2HFY21 performance due to the imposition of MCO 2.0 in Malaysia and sales are likely to normalise from a high in 1HFY21 in China. We upgrade our call to BUY from Hold as the share price has fallen to below our unchanged TP of RM1.75, based on a 50% discount to RNAV.

Results Above Expectations

IOIPG’s 6MFY21 results were above market and our expectations. Core net profit of RM324m comprises 54-58% of our and the consensus forecasts for FY21 of RM562- 602m. Revenue was up 13% yoy to RM1.25bn in 6MFY21 as progress billings accelerated for its ongoing projects and sales picked up in China due to pent-up demand for homes. IOIPG achieved RM443m of sales in 2QFY21, lifting sales by 11% yoy to RM916m for 6MFY21 from RM876m in 6MFY20. New launches for its Xiamen project saw strong take-up rates in 6MFY21. Of the 6MFY21 sales, 46% came from China, 52% from Malaysia and the remaining 2% from Singapore.

Forex Gain and Absence of Major Impairments

Headline net profit grew 8% yoy to RM363m in 6MFY21, lifted by an unrealised forex gain of RM40m on its US$ loans. Property development EBIT was up 31% yoy, driven by higher revenue and a better EBIT margin (35.3% in 6MFY21 compared to 30.6% in 6MFY20). Property investment EBIT fell 27% yoy due to higher operating expenses and temporary rental rebates granted to support selected tenants during the CMCO and MCO periods.

A Top Sector BUY

Among the large-cap property companies, we believe IOIPG is relatively more resilient due to its exposure to China properties and relatively low land-holding cost. We upgrade our call on IOIPG to BUY from Hold with an unchanged TP of RM1.75, based on a 50% discount to RNAV following the correction in the share price from the 12-month high of RM1.77. The current price/book of 0.4x is attractive. Key risks are weak property sales and slow recovery of its retail mall and hotel businesses.

Source: Affin Hwang Research - 22 Feb 2021