9M19 CNP of RM544m is within street’s, but above our, estimate, while sales of RM1.38b is broadly in-line with our FY19 target. No dividends, as expected. Key growth drivers are its overseas projects. Raise FY19-20E CNP by 5-9%. IOIPG is currently the cheapest big player in our universe. Reiterate OUTPERFORM with an unchanged TP of RM1.65.

Above our, within street’s, estimates. 9M19 CNP* of RM544m exceeded our expectation (82%) but was in-line with consensus’ fullyear estimate (78%). Earnings were better than we expected because of higher-than-expected JCE contributions, thanks to better-thanexpected take-up rates in South Beach, Singapore. This is the second consecutive quarter where IOIPG exceeded expectations. 9M19 sales of RM1.38b (Malaysia: 58%, China: 40%, Singapore: 2%**) are broadly in-line at 67% of our FY19E target of RM2.05b as we expect a major launch in 4Q19. No dividends, as expected.

Results’ highlights. QoQ, 3Q19 revenue dipped by 27% due to lower property billings (-35%) from local and China projects. Note that last quarter, Phase D4 and D5 of Xiamen 2, China were launched with high take-up rates while progress completion for launches in China must be at minimum 50% which allowed for last quarter’s high-base effect. However, the decline in CNP (-20%) was partly cushioned by a sharp rise in JCE/associate contributions (+110%) thanks to sale of completed units at South Beach, Singapore. YoY, 9M19 CNP rose by 17% thanks to the improved group EBIT margin of 39.5% thanks to richer margins from its China projects and JCE/associate contributions recovering sharply to RM127m (9M18: -RM44m) due to sale of units at South Beach and PJ Midtown projects. Net gearing remained stable at 0.52x (2Q19: 0.52x).

Banking on overseas projects. To date, the group has launched GDV of c.RM1b in Xiamen 2, China (D3, D4, D5) which enjoyed very strong take-ups. Its maiden launch of Xiang An (a.k.a. Xiamen 3), China is targeted for 4Q19 (residential tower worth RM600m or RMB1.0b) and should fare just as well. Meanwhile, sales from South Beach Residences, Singapore has been promising, considering that it is a luxury property development. As for local projects, the group remains cautiously optimistic and is focused on inventory clearing.

Raise FY19-20E CNP by 5%-9%. We have kept our subsidiary sales targets unchanged (FY19-20E: RM2.05-2.13b) but have upped our sales assumptions for its JCE projects like South Beach (total GDV c. RM3.0b) as we previously had assumed very low take-ups for the project; we expect c. 55% take-up by end FY19. Unbilled sales of RM638m still remain low with less than 1-year visibility. However, inventory level rose by 8% QoQ to RM2.17b (at cost), which is one of the highest amongst our coverage.

Reiterate OUTPERFORM with an unchanged TP of RM1.65 based on 69% discount to its FD RNAV of RM5.31. The applied discount is at -1.5SD or at the lower end of our universe’s valuations range (-1.0SD to trough levels). At current price, the stock is trading at a new low of 9.5x Fwd. PER and 0.4x Fwd. PBV; the cheapest amongst the big players in our universe. Hence, IOIPG is our 2Q19 preferred pick being the most bashed-down big player despite its relatively brighter outlook compared to peers given its comparatively lesser dependence on local sales. This is because its main earnings driver is its Xiamen, China projects, which have delivered strong uptakes.

Risks include: (i) weaker-than-expected property sales, (ii) margin compressions, (iii) changes in real estate policies/lending environments, and (vi) M&A/privatisation/cash-calls.

Source: Kenanga Research - 28 May 2019