Period  4Q14/FY14

Actual vs. Expectations FY14 core earnings of RM479m are broadly within expectations, at 106% of our estimates but fell slightly short of consensus at 93% of street estimates. We reckon that market may have overestimated billings or development margins.

 FY14 property sales of RM2.0b are spot-on to our assumption. We gather that 65% of sales were driven by Malaysia while the remaining was mostly from China.

Dividends  The group has declared an interim single-tier dividend of 8.0 sen which is a positive surprise as we did not anticipate any dividends. It worked out to a payout ratio of 53% based on our core earnings computations or 28% of reported PATAMI. The implied yield of 3.4% is on par with sizeable developers’ average yield. It is unclear if the management will pursue a dividend policy; but if they do, it would be a big positive for investors.

Key Results Highlights QoQ, 4Q14 reported higher net profit by 364% due to RM305m fair value adjustments; excluding this, core net profit rose by 68%. The main reason is better property performance as: (i) revenue rose by 18% and (ii) operating margin expanded by 14.4ppt to 39.3%. We gather that 4Q14 saw more billings from richer margin projects from Malaysia, rather than China.

 Its net gearing has increased slightly but still at very healthy levels of 0.15x from last quarter’s 0.11x, possibly due to its investment property CAPEX (e.g. IOI City Mall).

 Note that there is no YoY comparative figure.

Outlook  Besides launches of on-going project phases, new project launches include new townships in Bangi and Dengkil, which will cater towards affordable/mass housing projects. They may potentially launch the commercial component of their Xiamen, China project. IOI City Mall, Putrajaya will be completed by year end and we gather that most of the retail spaces have been tenanted.

Change to Forecasts No significant changes to FY15E core earnings (<1% change) post our housekeeping. We are maintaining our FY15E property sales assumptions of RM2.0b or flat growth in sales, as we remain cautious pending Budget-2015 presentation. Unbilled sales of RM1.45b provide one-year earnings visibility. We also estimate flattish FY15E NDPS of 8.0 sen.

Rating Maintain OUTPERFORM

Valuation  Lower TP to RM2.80 by a wider 50% discount to its unchanged FD RNAV of RM5.60 (TP of RM2.95 based on

47% discount, previously) to take into account more sector risks as we expect to see the market revising down earnings forecasts. However, we maintain our OUTPERFORM call. Among the sizeable developers, IOIPG is one of the biggest laggards, behind UEMS, with -5% YTD changes in price. The stock suffered from earnings disappointments vis-à-vis street’s estimates in previous quarters and has been heavily bombed out, to below its reference price of RM2.51. Going forward, we believe earnings expectations are at more manageable levels given their high township exposures. We believe investors will re-look the stock given its maiden dividends while prospects of a firm dividend policy will rerate the stock further.

Risks to Our Call Failure to meet sales targets. Sector risks, including overly negative policies.

Source: Kenanga