IOIPG’s 1HFY23 net profit and sales met expectations. All its business segments shown broad-based recovery with upbeat prospects ahead. Its Singapore developments are expected to more than offset the weakness from its China operation. We maintain our forecasts, TP of RM1.60 and OUTPERFORM call.

Within expectations. 1HFY23 core net profit of RM414m (after adjusting for RM470m fair value gains from IOI City Mall, impairment of RM35m, and RM193m of inventories reversal at the JV level) came within expectations at 55% each of both our full-year forecast and the full-year consensus estimate.

1HFY23 core net profit rose 21% mainly from stronger revenue and profitability across all its business segments thanks, recovering from a pandemic-stricken period a year ago.

1HFY23 sales of RM927m (comprising RM797m in Malaysia, RM102m in China and RM28m from 100%-owned Trilinq, Singapore) is also in line with our RM1.9b target and company’s target of RM2.0b. As at end Dec 2022, its unbilled sales stood at RM489m.

In the quarters ahead, we expect JV contributions to be stronger driven by more unit sales at Cape Royale (its 65%-owned JV development in Singapore) as more units are released for sale upon lease expiry. YTD, 32 units of Cape Royale have been sold, out of the 302 units available. We highlight that the reversal of inventories worth RM193m this quarter (which we deem as non-core) came from Cape Royale which has seen increased prices amidst the strong demand for Singapore properties post-pandemic. To recap, Cape Royale was completed in 2013 which was fully kept as rental properties by IOIPG due to weak prices then, dampened by multiple rounds of cooling measures implemented by the Singaporean government.

While IOIPG’s China developments (with remaining GDV of RM1.4) have slowed down, no thanks to China’s property debt crisis, the gap will be cushioned by its upcoming Singapore development at Marina View (c.RM5b GDV) to be launched in FY24.

IOI City Mall phase two which commenced operations in Aug 2022 is currently 85% tenanted, with prospects underpinned by sustained retail demand. Xiamen Mall (95% tenanted) in China which commenced operations in Oct 2021 is also expected to see increased contributions thanks to China’s reopening in Jan 2023. Thanks to the overall footfall recovery and the addition of these two malls, its property investment’s operating profits have surpassed pre-pandemic levels this quarter.

Meanwhile, Central Boulevard Singapore, its largest investment property asset worth c.RM12b, is on schedule to be completed by end- 2023.

Its hospitality arm has reported its first quarterly operating profit in 2QFY23 after three consecutive years of losses owing to the pandemic. We expect such profitability to sustain underpinned by the higher tourist arrivals and increased events going forward.

We maintain our forecasts and TP of RM1.60 based on 60% discount to RNAV which is in line with peers’ 60%-65%. There is no adjustment to TP based on ESG given a 3-star ESG rating as appraised by us (see Page 5).

We like IOIPG for: (i) its expanding investment property portfolio that could eventually be monetised via a REIT, (ii) its vast land bank acquired at a low cost that translates to above-average development margins in the industry, and (iii) its matured 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 - 27 Feb 2023