KEY INVESTMENT HIGHLIGHTS

• 9MFY20 earnings below our expectation

• Earnings weighed by MCO

• 9MFY20 new property sales at RM1.14b

• Earnings estimates revised downwards

• Maintain BUY with a revised TP of RM1.21

9MFY20 earnings below our expectation. IOI Properties Group (IOIPG) 9MFY20 core net income of RM445.6m came in within consensus expectation (at 71% of consensus full year estimates) but below our expectation as it makes up only 64% of our full year forecast. The negative deviation could be attributed to the weaker than expected earnings from its operating segments as a result of Covid-19 pandemic.

Earnings weighed by MCO. IOIPG recorded lower core net income of RM82.1m (-52.5%yoy) in 3QFY20, bringing cumulative core net income to RM445.6m (-16.1%yoy) in 9MFY20. Note that we have excluded mainly forex loss of RM37m in our core net income calculations. The lower earnings in 9MFY20 were mainly due to disruption to business as a result of Covid-19 pandemic. Profit before tax (PBT) of property development fell by 14.9%yoy due to imposition of Movement Control Order (MCO) in Malaysia and lockdown in China whereby construction works were stopped. Similarly, PBT of property investment eased by 16.1%yoy mainly due to lower rental income from retail segment as a result of closure of non-essential businesses and services during the MCO.

9MFY20 new property sales at RM1.14b. IOIPG recorded new property sales of RM267m in 3QFY20, lower than new sales of RM486m in 2QFY20. That brought total new sales to RM1.14b in 9MFY20. Malaysia makes up 75% of new sales followed by China and Singapore at 24% and 1% respectively. Meanwhile, unbilled sales eased to RM517m in 3QFY20 from RM742m in 2QFY20. Looking ahead, new sales in 4QFY20 are expected to be contributed by projects in Malaysia and China as the latter had their lockdown lifted.

Maintain BUY with a revised TP of RM1.21. We revised our FY20/21F earnings forecasts by -25.5%/-13% as we expect lower earnings contribution from its operating segments. Correspondingly, our TP for IOIPG is revised to RM1.21 from RM1.33 as we widen our RNAV discount to 70% from 67%. We maintain our Buy call on IOIPG as its valuation remains attractive, trading at steep discount of 68% to NTA of RM3.40 per share. Besides, outlook for its project in China improves as the lockdown was lifted.

Source: MIDF Research - 1 Jun 2020