IOIPG and HKLI have entered a MoA to jointly develop Central Boulevard, Singapore, which is largely an investment property project, on a 67:33 basis. This comes as a positive surprise as it would help alleviate balance sheet stress by lowering FY18E net gearing from 0.63x to 0.49x. No earnings impact expected. Maintain OUTPERFORM and TP of RM2.30.

MoA to jointly develop Central Boulevard, Singapore. This morning, it was announced that IOIPG and Hong Kong Land International Holdings Ltd (HKLI) had entered into a Memorandum of Agreement (MoA) to enter a JV to develop the Central Boulevard, Singapore land on a 67%:33% basis, respectively. Recall that in Nov-16, IOIPG had successfully tendered for this project for SGD2.84b (RM7.7b) and we gather that the project is largely earmarked for investment property purposes. The share consideration is based on the tender cost, i.e. IOIPG and HKLI with investment stakes of SGD1.90b and SGD0.94b, respectively. Expected timeframe for completion is in 1QCY18.

The news comes as a surprise as we did not anticipate partnerships for this project. Nonetheless, we view this positively as it helps alleviate some balance sheet stress. From the portion paid by HKLI, this would help lower FY18E net gearing from 0.63x to 0.49x. Additionally, it would also help with CAPEX stress during the development stage. For now, we leave our net gearing estimates unchanged pending finalisation of the deal. No earnings impact expected.

Outlook. We expect IOIPG to continue its emphasis on affordable housing (Bandar Puteri Bangi, Bandar Warisan Puteri), its stronghold in Bandar Puteri Puchong (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.

Maintain OUTPERFORM and TP of RM2.30 based on 57% discount (+0.25SD) to its FD RNAV of RM5.31. We have positioned the stock as our 2QCY17 TOP PICK as a big-boy laggard 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 - 13 Jun 2017