1QFY20 CNP of RM188.7m came in within expectations, representing 29% of our full-year forecast and 28% of consensus number. The better YoY performance was attributable to higher property development earnings and over-provision of expenses in the previous financial year. Reiterate OP with a slightly lower TP of RM1.55 (from RM1.65) as we switch to adjusted P/BV valuation method.

1QFY20 off to a steady start. 1QFY20 CNP came in at RM188.7m, which accounted for 29% of our FY20 forecast and 28% of consensus number. The better YoY performance was lifted by higher contributions from property development projects (particularly in China and Klang Valley), higher share of profit in JV mainly from Singapore and over provision of expenses in the previous financial year. No dividend was declared in 1QFY20 as expected.

Result highlights. QoQ, the Group’s CNP came in stronger, mainly attributable to higher property development contributions, as 4QFY19 performance was dragged by an impairment loss of RM42.8m in a JV project. Reported net profit of RM136.6m in 1QFY20 was broadly flat QoQ as 4QFY19 benefited from a fair value gain on investment properties amounting to RM93.4m.

Cautiously optimistic. IOIPG’s strategy is to focus on the affordable housing segment and clearing inventory of unsold properties in Malaysia while the Group is also targeting to launch RM1.7b/RMB2.9b worth of projects in Xiamen, China (although the on-going US-China trade war may disrupt its short-term plan).

Keeping our earnings forecasts. We are maintaining our forward earnings as sequential quarterly earnings could be slightly softer arising from lower share of profit from JV projects in Singapore.

Reiterate OUTPERFORM with a lower TP of RM1.55 (from RM1.65 previously), as we switch to the more conservative P/BV valuation method (from RNAV). This represents a better gauge on the trough valuations of property stocks amid the prevailing market down-cycle. Our TP is derived from a P/BV of 0.47x (minus 0.5SD of its 3-year historical band) on an adjusted BV/share of RM3.25 (after imputing a 40% discount to its latest available inventory level of completed properties). While the property sector outlook remains challenging, we reckon the stock (down 25% YTD) has been oversold given its current depressed P/BV valuations.

Risks include: (i) weaker-than-expected property sales arising from a prolonged US-China trade war, (ii) margin compressions, (iii) changes in real estate policies/lending environments, and (iv) M&A/privatisation/cash-calls.

Source: Kenanga Research - 26 Nov 2019