IOIPG’s  2QFY15  results  came  in  below  expectations.  Maintain NEUTRAL  with  a  lower  TP  of  MYR2.25  (8.7%  upside),  given  the  weak sentiment in the sector. New sales reached only MYR272m, down from MYR370m in 1QFY15, due to lack of new launches. We expect 2H sales to  come  in  stronger  given  the  maiden  launch  of  Bandar  Puteri  Bangi. Meanwhile, IOI City Mall could potentially boost earnings in 2HFY15.  
 
Below expectations. IOI  Properties  Group’s (IOIPG)  2QFY15  earnings came  in  below  our  and  market  expectations.  Headline  net  profit  was lifted  by  a  one-off  revaluation  gain  for  IOI  City  Mall,  amounting  to MYR178.3m.  The  mall  is  currently  valued  at  MYR1.1bn,  or  about MYR730  psf.  We  expect  further  upside  over  time,  as  tenancy  and average rental rate move up. Excluding the one-off gain, despite a 19% QoQ  growth  in  topline,  core  net  profit  was largely  flat  mainly  due  to  the loss  in  share  of  joint  ventures  income  (relating  to  the operating  cost  for South  Beach  office  tower),  as  well  as  lower  operating  margin  for  the property  investment  division,  which  could  be  attributed  to  the  higher start-up expenses for IOI City Mall that was opened in end 2014.  

MYR272m  new  sales  in  2QFY15.  New  sales  hit  only  MYR272m  in 2QFY15,  down  from  MYR370m  in  1QFY15,  due  to  the  lack  of  major launches  during  the  quarter.  This  brought  1HFY15  new  sales  to MYR642m.  More  than  80%  of  the  2QFY15  sales  were  contributed  by projects from Malaysia, and some 10-15% from The Trilinq in Singapore, and the remaining about 2% from  China. New sales should be better in 2HFY15,  as  the  newly  launched  Phase  1  Bandar  Puteri  Bangi  (GDV: MYR608m) has received a take-up rate of >60% since its launch in Jan 2015, and China Xiamen IOI Palm City project (GDV: MYR1.24bn) could also  be  rolled  out  in  4QFY15.  Hence,  for  now,  we  think  IOIPG’s sales target of MYR2bn for FY15 is still achievable.

Forecasts.  We  make  no  changes  to  our  earnings  forecasts,  as  rental income from IOI City Mall could kick in higher in 2HFY15. Unbilled sales remained steady at MYR1.45bn, compared with MYR1.4bn in 1QFY15.  

Maintain NEUTRAL. We maintain our NEUTRAL rating on the stock. As outlook  for  the  property  sector  remains  challenging  and  there  is  no sector  re-rating  catalyst  in  sight,  we  lower  our  TP  to  MYR2.25  (from
MYR2.63), based on a larger 50% discount to RNAV (from 40%).

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Company Profile

The  property  arm of  IOI  Corp,  IOI  Properties  Group  (IOIPG)  is  a  specialised  township  developer  in  Malaysia,  with  anchor  projects in Puchong, the Klang Valley and Kulai, Johor. Its overseas exposure includes Xiamen, China and Singapore.

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Source: RHB