FY16 CNP (RM649m) was within street consensus but below our expectation. Sales for the period of RM2.2b exceeded our target of RM1.84b. Declared dividend of 8.0 sen is higher than our forecast. We expect FY17E sales of RM2.2b while we raise FY17E earnings (+5%). Upgrade to MARKET PERFORM from UNDERPERFORM with higher TP of RM2.45 given the strong set of results.

FY16 CNP of RM649m came in within consensus but below our expectation, where it made up 102% of street’s consensus estimate but only 92% of ours. Our CNP excludes non-cash one-off gains of RM432m, which mainly arose in 2H16 from FV or one-off adjustments (note that close to half of it arose from its JCE). The negative variance against our estimate was due to losses from share of JCE being more aggressive than anticipated while our development margin assumption was on the high side. FY16 sales at RM2.2b (+21% YoY) was a positive surprise as it beat our target of RM1.84b, largely due to pick-up in local and overseas sales. Declared dividends of 8.0 sen (3.3% yield) which exceeded our FY16E assumption of 6.0 sen.

4Q16 CNP was marginally up by 2% QoQ to RM114m. Property billings propelled revenue up by 39% QoQ with segment margin improvement of 4.3ppt to 36.1%, while its recurring income segments (property investment, leisure/hospitality) showed improvements; however, this was mostly negated by the losses arising from share of JCE (e.g. Seascape@Singapore). FY16 CNP rose by 23% YoY largely due to billings from projects with healthy take-ups and at critical construction stages (e.g. Trilinq@Singapore, IOI Palm City Ph2@Xiamen, Bandar Puteri Bangi).

No sales guidance, but we expect management to maintain RM2.2b sales in FY17. For FY17, the group will be more reliant on local sales than the previous year (FY16: 51% overseas and 49% local). The group will continue to leverage on its established townships and new ones like Bandar Puteri Warisan, Bandar Puteri Bangi and IOI Resort City.

Raising FY17E CNP by 5% to account for higher-than-expected FY16 sales and 10% increase in FY17E sales target to RM2.2b. However, the effect is partly net-off against the margin compressions observed and reduction in share of JCE profit. Unbilled sales of RM1.6b provide less than one-year visibility.

Higher TP of RM2.45 based on a narrower discount of 56% to its FD RNAV of RM5.56 (previous TP of RM2.09 @ 62% discount to FD RNAV of RM5.56). Our applied discount is now closer to its historical mean since inception which we believe is fair considering their stronger-thanexpected sales performance, which could largely be attributed to their overseas sales while taking into account the less than one-year unbilled sales visibility and challenging local market. There is also no immediate term catalyst either. Additionally, the stock has already performed well gaining 8% YTD vs. the KLPRP (+6% YTD) with investors riding on higher-beta plays as the broad market rallied. We had underestimated this high-margin developer and its ability to grab market share in the market via their township products. Thus, we upgrade IOIPG to MARKET PERFORM from UNDERPERFORM.

Risk to our call includes: Better or worse than expected property sales. Positive or negative real estate policies. Changes in lending environment.

Source: Kenanga Research - 23 Aug 2016