4QFY19 reported net profit higher yoy and qoq

Boosted mainly by higher property development sales and margins, reported net profit of RM14.8m in 4QFY19 is higher than the RM14.1m and RM6.6m recorded in 4QFY18 and 3QFY19, respectively. There was no contribution from General Construction as the group decided to focus on its own property development business. Oil Palm Cultivation posted a higher PBT of RM0.3m in spite of lower revenue.

FY19 reported net profit higher yoy at RM56.8m, higher DPS proposed

With the stronger 4QFY19 and the recognition of deferred tax assets, OIB reported a net profit of RM56.8m for the financial year compared to RM36.7m in FY18. Following the higher profit, a higher dividend per share of 8.0 sen has been proposed (FY18: 7.0 sen), giving a dividend yield of 4.0% at current share price.

FY19 core net profit however lower than expected

Excluding the one-off recognition of deferred tax assets, FY19 core net profit of RM27.3m is however lower than the RM37.9m recorded in FY18 and our FY19 forecast of RM36.1m. Key contributing factors are lower property development margins, higher interest costs, a higher effective tax rate and a real property gains tax of RM5.5m.

Management focused on clearing inventory and launching new projects

The group has adopted a two-pronged strategy of clearing inventory (in launches in FY19 and existing projects, including Seroja Hills, Myra Alam and Myra Meranti) and launching new projects (Taman Seri Bestari, DPP18 and Desa Pinggiran Putrajaya). New launches are also being planned to capture the improving market sentiment and ride on the Home Ownership Campaign, which has been extended to end-2019.

Expanded eligibility criteria announced by BNM will further boost demand

The expanded eligibility criteria just announced by Bank Negara Malaysia for the RM1bn Fund for Affordable Homes (including increasing the maximum monthly household income to RM4,360 and maximum property price to RM300,000) will further boost the growing demand for affordable housing, a segment OIB is also focused on.

On the look-out for more land acquisitions or JV opportunities

As at end-June 2019, OIB has land banks (including land banks under land owner and developer agreements) totaling 2,014 acres. Last month, the group also announced the proposed acquisition of approximately 104 acres of land, planted with oil palms, in the District of Kuala Langat, Selangor from Sime Darby Plantation Bhd for RMRM40.1m. It is still on the look-out for more land acquisitions or asset-light joint venture opportunities. Unbilled property sales as at end-June 2019 is approximately RM107.4m.

Trimming FY20 forecasts, introducing FY21 expectations

Based on a lower pretax margin of 22.2% (previously 24.5%) but a slightly higher revenue of RM300.0m (previously RM285.0m), we are trimming our FY20 core net profit forecast for OIB from RM39.8m to RM37.3m. We are also introducing our forecasts for FY21, including a core net profit forecast of RM40.0m or 25.8 sen per share.

Maintain BUY with a slightly higher TP of RM2.70

Pegging an unchanged target PE of 10.8x on the CY20F EPS of 25.0 sen, the target price for OIB is raised slightly from RM2.65 to RM2.70. Maintain BUY. OIB is a well-managed medium-sized property development company trading at an attractive valuation and offering a reasonable dividend yield. Stock liquidity however remains poor.

Source: Mercury Research - 23 Aug 2019