1Q18 CNP of RM243m met expectations while sales for the period of RM677m is also on track at 23% of our FY18E target of RM2.90b. No dividends, as expected. Expect a more equal mix of local and overseas sales in FY18 with Xiamen Ph 2 lined up for launch in 4Q18. No changes to earnings. Maintain OUTPERFORM and TP of RM2.20. The stock is an unwarranted laggard at current valuation levels.

Within expectations. 1Q18 CNP of RM243m met expectations at 26% each of street’s and our FY17 estimates. Sales for the period at RM677m (Malaysia-54%, Singapore-34%, China-12%) is also on track at 23% of our FY18E target of RM2.90b. No dividends, as expected.

QoQ, 1Q18 CNP dipped 27% on the back of a 27% drop in revenue as 4Q17 enjoyed peak sales from Trilinq, Singapore, which also coincided with the project’s completion, resulting in exceptionally high earnings recognition last quarter. YoY, 1Q18 CNP rose by 28% despite a weak top-line (-3%) due to: (i) sharp improvements in group EBIT margin (+7.8ppt) driven by all segments, particularly development, and (ii) improvement in associate/JCE contributions. Net gearing has remained at 0.57x since last quarter.

Overseas projects to remain a key driver for FY18 sales. While official sales target for FY18 has not been revealed yet, we expect a more equal mix between local-overseas sales. The overseas drivers are Trilinq Singapore (c. RM0.5b GDV remaining) and Xiamen 2 (c. RM5b GDV remaining of which the group intends to launch RM0.6b by 4Q18). Locally, the emphasis will remain on affordable housing i.e. Bandar PuteriBangi, Bandar WarisanPuteri, its stronghold in Bandar Puteri Puchong (Le Pavilion), 16 Sierra, IOI Resort City (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. We have yet to factor the impact of this JV into our estimates, particularly its positive net gearing impact and potential recovery in dividend pay-outs, pending completion of the deal by 1QCY18. At this juncture, we do not foresee cash-call unless there are significant acquisitions.

No changes to earnings. Unbilled sales are now at RM0.93b (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 advanced completion progress upon the point of sale. It is notable that the group can only launch its Xiamen 2 project upon completing 50% construction progress – this also means that resulting sales will see more immediate revenue recognition.

Maintain OUTPERFORM and TP of RM2.20 based on 59% discount to its FD RNAV of RM5.31; applied discount is at mean level which is conservative considering that the group has overseas drivers to shore up headline sales. FY18E core PER of 12.5x is trading at trough levels. The stock remains a big-boy laggard with YTD gains of 2% vs. the KLPRP’s 8% and big-cap (>RM3b market cap) peers’ average of 7%.

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 - 21 Nov 2017