Period

1Q16

Actual vs. Expectations

1Q16 core earnings of RM116m came below market but within our expectations, accounting for 17% of street’s FY16 estimate and 22% of ours. We reckon the market had been overly bullish with their margin estimates as 1Q16 revenue was inline with consensus’ topline estimates.

1Q16 sales of RM303m (-17% YoY, -61% QoQ) made up 17% of our FY16E sales assumptions of RM1.8b, which we deem as broadly inline due to the timing of their launches which is skewed towards subsequent quarters. Sales were driven by operations in Malaysia (58%), China (25%) and Singapore (17%).

Dividends

None, as expected.

Key Results Highlights

QoQ, 1Q16 core earnings fell by 47% given the high-base effect of 4Q15 which saw: (i) a surge in net interest income due to reversal of interest expenses relating to its qualifying assets, (ii) higher-than-normal sales from JCE/Associates projects.

YoY, 1Q16 revenue grew by 59% on stronger billings from Trilinq@Singapore and IOI Palm City@Xiamen, China. However, these projects carry thinner margins than Malaysian ones, resulting in development EBIT margins compressions of 4.7ppt to 35.2%. Thus, core earnings only rose by 14%.

Outlook

Going forward, the group will be launching RM2.0b worth of projects in FY16. This includes: (i) c.RM600m GDV from Xiamen China project (Xiamen Phase 2 and Xiamen Phase 1 Block 1 commercial portion), (ii) maiden launch of their Dengkil township project, and (iii) new phases from already launched projects like Bandar Puteri Bangi and 16 Sierra.

Change to Forecasts

No changes to estimates. Unbilled sales of RM1.52b provide close to one year earnings visibility.

Rating

Maintain MARKET PERFORM

Valuation

No changes to TP of RM2.09 based on 62% discount to its enhanced FD RNAV of RM5.55 as the acquired land is realisable and substantial in value. The applied RNAV discount is steeper compared to our sector average of 54%.

The stock has done well recently, rallying by 15% since early Sep-15. However, the stock has lost its momentum post announcement of the significant dilution arising from the new share issuance to finance the IOI City Resort landbank acquisition and has eased from its recent highs of RM2.34. We do not see any near-term catalyst while the property sector backdrop remains challenging.

IOIPG is trading at 0.6x FY16E PBV which offers some downside buffer over the longer term.

Risks

Weaker-than-expected property sales.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environment.

Source: Kenanga Research - 17 Nov 2015