FY17 CNP of RM911m beat our but met market’s expectations. Results positively surprised us on better than-expected Trilinq contributions. FY17 sales of RM2.85b is a record high, exceeding both management’s and our targets. However, dividend of 6.0 sen disappointed on lower pay-out. Raise FY18E CNP by 16% on higher sales and billings assumptions. Maintain OUTPERFORM with a TP of RM2.30.

Sales beat targets. FY17 CNP* of RM911m beat our expectations but was in-line with market at 113% and 98% of the respective full-year estimates. Results positively surprised us due to higher-than-expected property billings and margins, thanks to Trilinq, Singapore. FY17 sales came at a record high of RM2.85b, exceeding both management’s initial target of RM2.30b and our RM2.61b target; note that 61% of sales are overseas drivers. An interim single-tier dividend of 6.0 sen was declared, which came below our estimates of 7.2 sen due to a lower pay-out ratio of 38% of CNP compared to the last 2 years’ average of 49%.

Driven by Trilinq. QoQ, 4Q17 CNP was up by 194% largely due to the development segment which saw both a 33% top-line improvement and 28.2ppt improvement in the segment’s EBIT margins to 45.2%. This was driven by higher recognitions of the completed Trilinq, which are seeing higher sales. Furthermore, the previous quarter expensed one off additional buyers' stamp duty with interest arising from Trilinq. YoY, FY17 CNP is up by 40% on higher progress billings and share of associates/JCE turning into the black. The group’s net gearing has been reduced to 0.57x from last quarter’s peak of 0.74x.

Overseas projects to remain a key driver for FY18 sales. While management has not provided official sales targets for FY18, we expect oversea markets to be the main drivers i.e. Trilinq Singapore (c. RM0.7b GDV remaining) and Xiamen 2 (c. RM5b GDV remaining). Locally, the emphasis will remain on affordable housing (Bandar PuteriBangi, Bandar WarisanPuteri, its stronghold in Bandar PuteriPuchong (Le Pavilion), 16 Sierra, IOI Resort Fity (Connezion, Par 3). Additionally, pending is a MoA between IOIPG and Hong Kong Land International Holdings Ltd to jointly develop the Central Boulevard, Singapore land on a 67%:33% basis, respectively. We have yet to factor the impact of this JV into our estimates, particularly its positive net gearing impact, pending completion of the deal by 1QCY18. At this juncture, we do not foresee cash-calls unless there are significant acquisitions.

Raising FY18E CNP by 16% while introducing FY19E estimates on higher sales assumptions and adjustments in billings progress (refer overleaf for details). However, unbilled sales have thinned significantly by 31% QoQ to RM1.02b (less than half-year visibility) due to more recognition of overseas projects which tend to have relatively less unbilled sales due to their completed or advance completion progress upon point of sale.

Maintain OUTPERFORM and TP of RM2.30 based on 57% discount to its FD RNAV of RM5.31; our RNAV discount is based on +0.25SD levels due to its overseas drivers which have shored-up group sales. At current valuations, its Fwd. core PER of 12.9x, in particular, is at trough valuations. The stock remains a big-boy laggard with YTD gains of +5.7% vs. the KLPRP’s 11.6% and big-cap (>RM3b market cap) peers’ average of 15%. Risks include: (i) weaker-than-expected property sales, (ii) margin issues, (iii) negative real estate policies/lending environments, and (vi) more cash-calls.

Source: Kenanga Research - 29 Aug 2017