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4QFY20 core net profit declined sharply by 91.1% yoy and 64.0% qoq

Yoy, OIB’s group revenue and core net profit declined by 65.7% and 91.1% respectively mainly due to the temporary shutdown of the group’s business activities and operations in compliance with the Movement Control Order (MCO) from 18 March to 9 June which disrupted construction work progress of its housing projects. Property Development and General Construction PBT declined by 85.5% and 68.8% respectively while Oil Palm Cultivation PBT increased by 32.4%. Qoq, group revenue and core net profit declined by 38.8% and 64.0% respectively. No dividend has been announced in 4QFY20 (4QFY19: 8.0 sen).

12MFY20 revenue and core net profit declined by 31.0% and 3.3% yoy

The sharply weaker 4Q contributed to a 31.0% and 52.2% yoy decline in group revenue and net profit for the 12-month period. After excluding the substantial deferred tax assets recognized and lower real property gain tax in 12MFY19 and other exceptional items, 12MFY20 core net profit declined by a marginal 3.3%, helped by stronger performance in the Property Development segment in the earlier quarters. General Construction and Oil Palm Cultivation PBT declined by 59.9% and 18.5% respectively, the latter due to higher costs of replanting negating the gains from higher production and CPO prices.

Within expectations, maintain forecasts

The sharply weaker 4Q is within expectations and with another 2 months to go following the change in financial year end to August, we continue to expect OIB to meet our core net profit forecast of RM31.8m for FY20F. Standard Operating Procedures have been relaxed after the country entered into the Recovery MCO phase from 10 June to 31 August. Marketing activities have continued as usual and more projects have been launched, including the latest iteration of its Myra development, 1 project in Melaka and 3 projects in Kedah. The Federal Government have also introduced various initiatives (including eligible home buyers to receive an incentive of RM30,000 and home buyers exempted from paying stamp duty for Memorandum of Transfer and loans) to boost property ownership and sales. We also maintained our core net profit forecast of RM36.0m for FY21F.

Land banks declined to 1,861 acres, still looking to increase land stocks

OIB’s land banks (including land banks under land owner and developer agreements) again declined slightly from 1,945 acres as at end of 3QFY20 to 1,861 acres. The group is still looking for more land banks which are strategically located with good infrastructure networks and amenities.

Maintain TP of RM2.11 and BUY rating

We maintain our target price of RM2.11 for OIB based on an unchanged target PE of 10.8x our unchanged CY20F EPS of 19.5 sen. OIB continue to be rated a BUY for its good management, the 25.2% upside potential, 40% discount to NA/share of RM2.93, and reasonable dividend yield.

Source: Mercury Research - 28 Aug 2020