Period

2Q16/1H16

Actual vs. Expectations

1H16 core earnings of RM423m beat expectations, making up 62% of street’s FY16 estimates and 77% of ours. This was due to higher-than-expected billings arising from China and Malaysia while development margins were slightly better than anticipated.

Sales for the period were RM1.0b (flat YoY) which made up 55% of our FY16E sales assumption of RM1.8b (flat YoY), deemed as within our expectation. Sales drivers were Malaysia (53%), China (37%) and Singapore (10%).

Dividends

None, as expected.

Key Results Highlights

QoQ, 2Q16 core earnings rose sharply by 166% due to: (i) timing of billings, (ii) a more normalized effective tax rate of 28.5% vs. last quarter’s 42.9%, (iii) JCE/Associate contributions was up to RM98m vs. 1Q16’s -RM14m.

YoY, 1H16 core earnings rose by 109% due to strong billings from Trilinq@Singapore and IOI Palm City@Xiamen, China.

Outlook

Key launches for FY16 (GDV: RM2.0b) includes: (i) c.RM600m GDV from Xiamen China project (Xiamen Phase 2 and Xiamen Phase 1 Block 1 commercial portion), (ii) maiden launch of Bandar Puteri Warisan township project, (iii) new phases from already launched projects like Bandar Puteri Bangi and 16 Sierra, (iv) first launch (Mar/Apr-16) of the land next to IOI Resort City which the group recently acquired in Oct-15.

Change to Forecasts

Increase FY16-17E core earnings by 29-24% due to quicker billings assumptions and improvement in development margins. Our sales assumptions are unchanged. Unbilled sales of RM1.4b provide <1 year of earnings visibility.

Rating

Upgrade to MARKET PERFORM

Valuation

No change to our 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 just slightly steeper compared to our sector average of 55%. The placement of 644.8m shares (17% increases in share base) was completed at end Jan-16. Since then, the share price has slid from a high of RM2.37, reflecting the dilution effect arising from the new shares from the post-placement. However, we see no near-term catalysts for the stock.

Risks

Weaker-than-expected property sales.

Higher-thanexpected sales and administrative costs.

Negative real estate policies.

Tighter lending environment.

Source: Kenanga Research - 26 Feb 2016