9MFY22 CNP of RM512m came within our expectation at 80% but could be trailing consensus (at 72%) as the lockdowns in China could hamper earnings contributions in that region for 4QFY22. Meanwhile, 9MFY22 sales of RM1.3b trails our/management’s RM1.9b/RM2.1b target as 4QFY22 sales is unlikely to be strong given China’s lockdowns coupled with the absence of HOC in Malaysia. Nonetheless, we make no changes to our estimates for now and keep OP with unchanged TP of RM1.65 pegged to 0.45x PBV.

Within expectations. 3QFY22 CNP of RM169m* led 9MFY22 CNP to RM512m – within our expectation at 80% but could be trailing consensus at 72%. We feel so because the current lockdowns faced in China (due to its zero Covid policy) could potentially hamper earnings contributions from that region in 4QFY22. No dividends as expected – IOIPG only dishes out one final dividend in 4QFY.

*derived CNP after reversing out of property development costs writedown of RM111m.

Sales trailing targets. 3QFY22 sales of RM418m (Malaysia: RM368m; China: RM50m) led 9MFY22 sales to RM1,314m (Malaysia: RM959m; China: RM355m), trailing our/management’s target of RM1.9b/RM2.1b at 69%/63%. Given the lockdowns in China coupled with the absence of HOC in Malaysia since Dec 2021, we feel that 4QFY22 is unlikely to be a strong quarter for sales. Nonetheless, we keep our target unchanged for now. As of March 2022, unbilled sales stood at RM537m.

Highlights. QoQ, 3QFY22 CNP of RM169m decreased 23% due to: (i) higher effective tax rates (+26ppt) arising from China, and (ii) lower JV contributions (-64%) as the previous quarter saw more completed unit sales from its Singaporean JV i.e. South Beach Residence and Seascape. YoY, 9MFY22 CNP of RM512m improved 9% mainly due to better JV contributions (+55%) from improved sales derived from their completed Singaporean developments as mentioned above.

Our key observation. During the quarter, IOIPG has written down RM111m of property development costs from its Xiamen 3 development a.k.a. IOI Palm International Parkhouse (which we reversed out to derive our CNP). Note that this is the second time they have written down property values at that development – the first time was in 4QFY21 where they wrote down RM109m. Such write downs allude to the tougher market environment at Xiamen 3 in which the group still have c.RMB1.1b worth of GDV to be launched.

Post results. Keep FY22E/FY23E earnings backed by unchanged sales targets of RM1.9b.

Maintain OUTPERFORM with an unchanged TP of RM1.65 based on 0.45x Fwd. PBV. Our buy thesis for the group remains as such; IOIPG is expected to see earnings growth derived from its key incoming investment properties (Central Boulevard in Singapore and IOI City Mall Phase 2) which would improve ROEs and IOIPG could eventually create a REIT to unlock the value of their existing investment properties. That said, we note that these catalysts may require some time to materialise.

Source: Kenanga Research - 26 May 2022