9M17 CNP of RM577m was within our expectations while broadly within consensus. Sales of RM2.18b exceeded management’s target but is broadly within ours. No dividends as expected. No changes to earnings. IOIPG is our 2QCY17 Top Pick (OP; TP RM2.30) as a big-boy laggard in a beta play.

9M17 CNP*of RM577m came within our expectations while broadly within consensus, making up72% of our and 68% of street’s FY17E estimates. Sales for the period was at RM2.18b (+49% YoY) exceeded management’s target but was broadly within our expectations as it made up against 95% management’s FY17E target of RM2.30b and 84% of our RM2.61b; note that 59% of 9M17 sales are from overseas. No dividends, as expected.

Results Highlights. QoQ, 3Q17 CNP of RM114m fell by 58% due to (i) normalization of billings as last quarter saw exceptionally high recognition from Trilinq, Singapore, (ii) this quarter expensing the one-off additional buyers stamp duty (ABSD) with interest of RM164m arising from Trilinq. YoY, 9M17 CNP was up by 8%. Although revenue was up significantly (+40%) due to strong billings from Trilinq, D3@Xiamen China, IOI Resort City and WarisanPuteri), group EBIT margins were down by 6.9ppt to 28.1% largely due to the ABSD as property investment/hospitality showed improving toplines and stable margins.

Outlook. Management has yet to comment on its sales target revisions while we remain comfortable with our estimates. We expect IOIPG to continue its emphasis on affordable housing (Bandar PuteriBangi, Bandar WarisanPuteri), its stronghold in Bandar PuteriPuchong (Le Pavilion), 16 Sierra, IOI Resort City (Connezion, Par 3), Singapore (The Trilinq) and Xiamen China. At this juncture, we do not foresee cash-calls unless there are significant acquisitions.

No changes to earnings. Unbilled sales of RM1.49b provide less than 1 year visibility.

Maintain OUTPERFORM and TP of RM2.30based on 57% discount (+0.25SD) toits FD RNAV of RM5.31. Since our upgrade to OUTPERFORM back on 22-Feb, share price has risen by 5% vs. the KLPRP (+7%). We have positioned the stock as our 2QCY17 TOP PICK as a big-boy laggard (YTD returns: IOIPG: +7%, KLPRP: +16%) in a beta play considering expectations of a better broad market while earnings risks are minimal.

Risks include: (i) weaker-than-expected property sales, (ii) margin issues, (iii) negative real estate policies/lending environments, (vi) more cash-calls.

Source: Kenanga Research - 24 May 2017