4QFY21 CNP of RM158m led FY21 CNP to RM628m – in line with both our/consensus forecast at 105%/97%. However, 2.0 sen dividend declared was below. Meanwhile, FY21 sales of RM2.3b surprised on the upside against our RM1.9b target. Introduce FY23E earnings of RM709m. Maintain MP with unchanged TP of RM1.32 based on 0.38x PBV (-1.0SD).

Within expectations. 4QFY21 CNP of RM158m led FY21 CNP to RM628m – in line with both our/consensus forecast at 105%/97% respectively. That said, the 2.0 sen dividend declared was below our 3.0 sen estimate.

Sales surprised on the upside. Meanwhile, 4QFY21 sales of RM0.74b (where the breakdown between Malaysia and China was at 59% and 41%) led FY21 sales to RM2.3b, above our RM1.9b sales target by 21%. We believe the higher-than-expected sales were due to purchasers seizing the opportunity to buy before the end of the Home ownership campaign (HOC) in May 2021. The HOC has since being extended to Dec 2021. Note that IOIPG has launched a total of RM1.9b worth of properties YTD (Malaysia: RM1.5b; China: RM0.4b).

Highlights. YoY, FY21 CNP of RM628m came off 3% despite the higher revenue (+18%) due to weaker margins achieved at its property development segment. We believe the weaker margin is attributable to products of weaker margin mix from China. QoQ, 4QFY21 CNP of RM158m increased 6% mainly due to the lower effective tax rate of 29% (vs 41%). Looking above the tax line, PBT actually came off by 11% despite higher revenue of 14%, likely due to weaker margin products.

Key observations. In 4QFY21, Ioipg has written down RM109m worth of property development costs from its China development – IOI Palm International Parkhouse. Such write-down is done in order to lower selling prices of its products to drive sales. While we treat such write-down as a one-off to derive our core earnings, this write-down provides a prelude towards lower margins for its Chinese developments in the future. Out of the remaining c.RM3b GDV left in China, (i) IOI Palm International Parkhouse constitutes c.RM2b while (ii) IOI Palm City makes up RM1b. Unbilled sales stood at RM810m as of 4QFY21.

Earnings forecast. Despite sales coming above expectation in FY21A, we keep our FY22E estimates unchanged backed by sales of RM1.9b as the property market continues to remain challenging. Meanwhile, we introduce FY23E earnings of RM709m, backed by flat property sales of RM1.9b. The stronger FY23E earnings (+11% YoY) is premised on the full recovery of the economy which would see its property investment division rebounding coupled with the additional contributions from incoming assets such as Palm City retail & office component (Xiamen), City Boulevard Towers (Singapore) and IOI City Mall Ph2 (Malaysia).

Maintain MP with unchanged TP of RM1.32 based on 0.38x Fwd. PBV pegged to -1.0SD below 5-year mean.

Source: Kenanga Research - 27 Aug 2021