INVESTMENT HIGHLIGHTS

• 9MFY18 earnings below expectations

• Weaker earnings from property development division

• 9MFY18 new sales at RM1.47b

• Maintain Neutral with a lower TP of RM1.69

9MFY18 earnings below expectations. IOI Properties Group Berhad (IOIPG) 9MFY18 core net income of RM483.4m came in below expectations, making up 62% and 56% of our and consensus full year estimates respectively. The negative deviation could be attributed to the weaker-than-expected contribution from property development division.

Weaker earnings from property development division. IOIPG recorded core net income of RM483.4m in 9MFY18 (-32.6%yoy). Note that we have excluded share of impairment loss in joint venture and forex gain in our core net income calculations. The weaker earnings in 9MFY18 were mainly owing to lower contribution from property development division. 9MFY18 operating profit of property development division eased 14.5%yoy due to lower contribution from local projects and overseas projects (Singapore and China). Meanwhile, operating profit of property investment division is higher by 20%yoy due to high occupancy rates of its retail and office properties. Meanwhile, 3QFY18 unbilled sales declined to RM990m from RM1.2b in 2QFY18, providing less than one year of earnings visibility to property development division.

9MFY18 new sales at RM1.47b. IOIPG recorded new property sales of RM340m in 3QFY18, lower than new sales of RM448m in 2QFY18. That brought total new sales in 9MFY18 to RM1.47b. 61% of the new sales in 9MFY18 came from local projects, 32% contributed by Singapore project while the remaining 7% contributed by project in China. Meanwhile, IOIPG plans to launch its residential projects in Xiamen, China in 4QFY18.

Maintain Neutral with a lower TP of RM1.69. We trim our earnings forecast for FY18/19 by 10%/7.8% to factor in lower contribution from property development division. Our TP for IOIPG is revised to RM1.69 from RM1.89 as we widen our discount to RNAV to 58% from 53% following the weaker-than-expected earnings. We maintain our Neutral call on IOIPG for its unexciting earnings outlook.

Source: MIDF Research - 21 May 2018