KEY INVESTMENT HIGHLIGHTS

• 1HFY20 earnings within expectations

• Marginally higher earnings in 1HFY20

• 1HFY20 new property sales at RM876m

• Earnings estimates maintained

• Maintain BUY with a revised TP of RM1.33

1HFY20 earnings within expectations. IOI Properties Group (IOIPG) 1HFY20 core net income of RM363.4m came in within expectations, making up 52% and 54% of our and consensus full year estimates respectively. Note that we have excluded forex loss of RM27m in our core net income calculations.

Marginally higher earnings in 1HFY20. IOIPG reported core net income of RM172.9m (-14.7%yoy) in 2QFY20, bringing cumulative earnings to RM363.4m (+1.4%yoy) in 1HFY20. The marginally higher earnings in 1HFY20 were mainly driven by higher contribution from property development division. Profit before tax of property development division climbed 5.7%yoy, underpinned by contribution from oversea project in China and Singapore as well as higher earnings recognition from local projects. Meanwhile, profit before tax of property investment division eased by 3.3%yoy despite higher topline due to preoperating expenses incurred for future investment properties namely Central Boulevard, IOI City Mall Phase 2 and IOI Palm City Mall in China. On the other hand, unbilled sales were flattish at RM742m in 2QFY20 against unbilled sales of RM750m in 1QFY20.

1HFY20 new property sales at RM876m. IOIPG registered new property sales of RM486m in 2QFY20, higher than new sales of RM389.5m in 1QFY20. That brought new sales to RM876m in 1HFY20. Malaysia makes up 74% of new sales followed by China and Singapore at 24% and 2% respectively. Looking ahead, we think that near-term new sales prospect for IOIPG’s projects in China is subdued due to the outbreak of coronavirus.

Maintain BUY with a revised TP of RM1.33. We make no changes to our earnings forecast for FY20F and FY21F. We revise our TP for IOIPG to RM1.33 from RM1.53 as we widen our RNAV discount to 67% from 62% due to the subdued near-term outlook for its projects in China. Nevertheless, we maintain our Buy call on IOIPG as its valuation remains attractive at current share price level, trading at steep discount of 69% to NTA of RM3.43 per share.

Source: MIDF Research - 26 Feb 2020