Period  1Q15

Actual vs. Expectations 1Q15 core earnings of RM101m made up 17% of consensus’ full-year estimate, and 18% of ours. While we are expecting a stronger 2H15 due to timing launches of previously launched projects, which were later than expected, we deem the results as slightly below expectations. This is due to lower-than-expected billings and contributions from Singapore.

 The group raked in R367m sales in 1Q15, of which 85% is from Malaysia, 11% from China and 4% from Singapore. This is proportionately behind target as it only made up 18% of our FY15E target of RM2.0b (0% YoY). However, do note that 1Q15 was the quarter running up to Budget-2015 announcement where most developers, including IOIPG, held back property launchings.

Dividends  None, as expected.

Key Results Highlights QoQ, 1Q15 revenue was down by 10% while core earnings dropped by 33%. There were lower billings from development (-16%) while corresponding EBIT margins dipped 2.0ppt to 37.3% on more recognition of lower margin projects (e.g. Xiamen, China). Other segments like property investment EBIT were relatively stable (+1%). Net gearing has increased to 0.24x from 0.15x as more “bridging” loans were converted to term loans as IOI City Mall is close to completion; this consequently pushed net interest cost up by 66% to RM10.2m.

 YoY, core earnings is down by 10%. The major reason is due to higher net interest cost (>100%) and significantly lower JCE/associates contributions (-74%) given the weaker Singapore property market.

Outlook  The Bangi township project will likely be launched by Dec-14/Jan15 and its first phase featuring double-storey terraces and shoplots. IOI City Mall, Putrajaya will be completed by year-end and we gather that most of the retail spaces have been rented out. However, operating breakeven levels may only be felt towards 2H16.

 The groups 1-for-6 rights issuance to raise RM1.0b is expected to be completed by 1Q15.

Change to Forecasts

 Toning down FY15-16E core earnings by 12% - 3% (refer overleaf). Unbilled sales of RM1.43b provides close to 1 year visibility.

Rating Maintain OUTPERFORM

Valuation  No changes to TP of RM3.10 based on 42% discount to its ex-rights FD RNAV of RM5.31. The applied RNAV discount is in-line with our sector average of 41%. We believe that the company may be looking to acquire new assets in the next 12 months. Furthermore, IOIPG is a sector laggard, which has surprised the market with dividends, while earnings disappointments are less likely considering that we have trimmed earnings in the last 4 consecutive quarters.

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

Source: Kenanga