INVESTMENT HIGHLIGHTS

• Earnings within expectations

• Growing earnings in 1QFY17

• Maintain new sales target of RM2.3b for FY17

• Maintain Neutral with unchanged TP of RM2.34

Earnings within expectations. IOI Properties Group Berhad (IOIPG) 1QFY17 core net income of RM181.2m was within expectations, at 22% and 23% of our and consensus full year estimates.

Growing earnings in 1QFY17. Core net income for 1QFY17 grew by 57%yoy due to higher contribution from property development division and property investment division. Operating profit of property development division climbed 28%yoy due to higher progress billing of its on-going property projects in Malaysia, Singapore, and China. Similarly, operating profit of property investment division grew 43%yoy, mainly driven by higher revenue contribution from IOI City Mall on the back of higher occupancy rate (from 88% to 94%) and positive rental reversion. On sequential basis, core net income for 1QFY17 was lower by declining 35%qoq mainly due to lower earnings contribution from property development division. Note that earnings of property development division in the previous quarter were boosted by profit recognition from Palm City project in China. Meanwhile, unbilled sales stood at RM1.59b, providing less than one year earnings visibility to property development division.

Maintain new sales target of RM2.3b for FY17. IOIPG recorded new property sales of RM730m in 1QFY17 (4QFY17 new sales: RM748m). 49% of the new sales were contributed from Singapore project, followed by local projects which contributed 31% while the remaining 20% contributed from project in China. New sales of RM730m in 1QFY17 is within our and management expectations, making up 32% of our and management new sales target of RM2.3b for FY17. We reiterate our view that property sales of IOIPG in FY17 should continue to be supported by its local projects in Klang Valley and oversea projects in China and Singapore.

Maintain Neutral with unchanged TP of RM2.34. We maintain our earnings forecast for FY17/18. We also maintain our TP of RM2.34, based on 40% discount to fully-diluted RNAV. While we take comfort in the stable sales outlook for IOIPG in FY17 and steady recurring income from property investment, the expected high net gearing of >0.5x post Singapore land tender and rights issue from current net gearing of 0.23x is a drag to IOIPG. Hence, we are maintaining our Neutral stance on IOIPG.

Source: MIDF Research - 23 Nov 2016