IOIPG has successfully tendered for 6.20ac leasehold land in Xiamen, China for RM1.40b. No GDV guidance was given, but we estimate GDV of RM7.0b, which ups FY17E net gearing to 0.23x. Even though it only increases our FD RNAV by 3%, we are slightly positive as overseas drivers will help sustain sales amidst a weak local market. CALL/TP is UNDER REVIEW (MP, TP: RM2.45 previously) pending our sector report.

Successful tender of 6.20 ac leasehold land in Xiamen, China for RM1.40b (RMB2.32b) by its 99.8% owned subsidiary. The vendor is Xiamen Bureau of Land Resources and Real Estate Management. The land is located in Xiang An Central Business District and is earmarked as a new integrated city (refer overleaf). Full payments will be made before 2nd Sept while the deal will be completed by 3QCY16.

No GDV guidance from management but we estimate project GDV of RM7.0b. Based on a plot ratio of 2.51, the project has a NSA of 678k sf of which 91% is for residential while the remaining is for commercial and a community service centre. Assuming a conservative land cost-to-GDV ratio of 20%, we estimate a total GDV of RM7.0b, which could be on a generous side compared to their other projects (refer overleaf); hence, we qualify that our estimates are subject to management’s confirmation of GDV guidance.

Slight positive. The group is extending their reach in Xiamen given that sales from their existing Xiamen projects, namely IOI Park Bo Bay (fully launched; 7.7ac @ GDV RM0.90b) and IOI Park City has done very well (20%-30% of annual sales; 43.6ac @ GDV RM2.45b). Furthermore, in view of the earlier rights issuance of RM1.0b, which was meant to finance Taipei 101 (deal was terminated), we knew that the group was on a lookout for another acquisition and thus, this acquisition does not surprise us. Note that as of 4Q16, the group has the balance of RM239m from unutilized rights proceeds which will be used for this acquisition. Post-acquisition, FY17E net gearing will increase from 0.14x to 0.23x which is still at a manageable level. Based on our estimated GDV calculations, this increases our FD RNAV by 3% to RM5.70, which is quite a minimal impact. Nonetheless, we acknowledge with a weak local demand landscape, the additional diversification should help the group sustain its sales momentum. No changes to estimates as we expect meaningful contributions from FY19 onwards.

UNDER REVIEW. We are placing our call/TP under review pending our sector update (previous call/TP: MP/RM2.45). In our last sector strategy (8/7/16), we had highlighted that we are monitoring two key indicators; (i) developers 1H16 sales must meet 40% of full-year targets (before any revisions during the year), and (ii) unbilled sales must provide more than one-year visibility. If majority of developers fail on one or both conditions, we are likely to maintain a negative bias on the sector; however, if both are mostly met, we may upgrade the sector to NEUTRAL. So, we will wait for the results round-up to determine our sector call, and thus, our individual stock calls.

We are also aware that the feel-good sentiment from the upcoming Budget-2017 will soon be translated to positive news flow, which in turn, may separate the weak sector fundamentals from developers’ share price performance. Risks include: (i) weaker/stronger-than-expected property sales, (ii) margin issues, (iii) changes in real estate policies, and (iv) changes in lending environments.

Source: Kenanga Research - 30 Aug 2016