FY22 results beat our forecast by 12% due to stronger overseas contributions but met consensus estimates. We raise our FY23F earnings forecast by 5% but lower our TP by 3% to RM1.60 (from RM1.65) after rationalising our valuation method to RNAV from PBV. We like IOIPG for its expanding investment property portfolio that could eventually be monetised via a REIT and its vast landbank acquired at a low cost that translates to above-average margins in the industry. Maintain OUTPERFORM.

Above expectations. FY22 CNP of RM713m (after adjusting for RM171m property development cost write-down and RM49m property investment fair value gains) beat our forecast by 12% but met consensus estimates. The variance against our forecast came largely from: (i) higher sales in Singapore; and (ii) contributions from China that defied Covid-19 related lockdowns.

Meanwhile, FY22 sales of RM1.93b comprising RM1.49b in Malaysia and RM0.44b in China met our RM1.9b target but fell short of IOIPG’s internal target of RM2.1b. As at end-June 2022, its unbilled sales stood at RM630m.

Highlights. FY22 CNP rose 13% mainly from stronger operating profit arising from its property investment division as Malaysian malls (IOI City Mall and IOI Mall, Puchong) showed improved footfalls and contributions. JV contributions were also stronger (+45%) from two Singaporean developments ie 64.9%-owned Cape Royale and 49.9%- owned Seascape.

Outlook. Moving forward, we expect two new investment properties to provide earnings growth for the group in the next two years. These key properties are: (i) IOI City Mall Phase 2 (commencing operations in 25th Aug-22) and (ii) Central Boulevard Singapore (commencing operations in 2HCY23). Meanwhile, the depleting GDV in China (c.RM2b outstanding) will be cushioned by Marina View mixed development in Singapore (c.RM5b GDV) under planning.

We raise FY23F earnings forecast by 5% after imputing in stronger JV contributions from Singapore. We introduce FY24F earnings forecast of RM753m backed by RM1.9b sales. 

We lower our TP to RM1.60 (from RM1.65) after rationalising our valuation method to RNAV (at 60% discount in line with peers 60-65%) from 0.45x PBV. There is no adjustment to TP based on ESG for which it is given a 3-star ESG rating as appraised by us (see Page 4). We like IOIPG for: (i) its expanding investment property portfolio that could eventually be monetised via a REIT; (ii) its vast landbank acquired at a low cost that translates to above-average margins in the industry, and (iii) its maturing townships, enabling it to realise high-value products, particularly commercial. Maintain OUTPERFORM.

Risks to our call include: (i) A prolonged downturn in the local property market; (ii) Rising mortgage rates hurting affordability; (iii) Rising construction cost; and (iv) risks associated with overseas operations.

Source: Kenanga Research - 23 Aug 2022