INVESTMENT HIGHLIGHTS

• 1HFY18 earnings below expectations

• Earnings dragged by property development division

• 1HFY18 new sales at RM1.13b

• Earnings estimates reduced

• Downgrade to Neutral from Buy with a lower TP of RM2.09

1HFY18 earnings below expectations. IOI Properties Group Berhad (IOIPG) 1HFY18 core net income of RM363.3m came in below expectations, making up only 41% and 40% of our and consensus full year estimates respectively. The negative deviation could be attributed to the lower-than-expected contribution from overseas projects. As expected, no dividend was announced for the quarter.

Earnings dragged by property development division. IOIPG recorded core net income of RM167.7m for 2QFY18 (-38.3%yoy). Note that we have excluded share of impairment loss in joint venture and forex gain in our core net income calculations. That brings 1HFY18 core net income to RM363.3m, declining by 19.8%yoy. The lower earnings in 1HFY18 were due to lower earnings from property development division. Operating profit of property development division dropped 19%yoy due to lower earnings recognition from local and Singapore projects. On the other hand, operating profit of property investment climbed 13.3%yoy due to higher occupancy rates and rental rates of its investment properties. Meanwhile, 2QFY18 unbilled sales stood at RM1.2b, increased from unbilled sales of RM930m in 1QFY18, providing less than one year of earnings visibility to property development division.

1HFY18 new sales at RM1.13b. IOIPG registered new property sales of RM448m in 2QFY18, lower than new sales of RM677m in 1QFY18 and new sales of RM795m in 2QFY17. That brought new sales in 1HFY18 to RM1.13b, lower than new sales of RM1.53b in 1HFY17 as last year sales were boosted by sales from Singapore project. 59% of the new sales in 1HFY18 were contributed by local projects, 22% contributed by Singapore project while the remaining 9% contributed by project in China.

Source: MIDF Research - 26 Feb 2018