3QFY15 results came in below expectations. Maintain NEUTRAL with a MYR2.25 TP (8% upside). We cut our FY15-17 earnings forecasts by 6-8% due to weaker-than-expected margins. New sales hit MYR390m, bringing 9M total to MYR1bn. We see potential downside to our FY15 sales target of MYR2bn, as the take-up in the new Xiamen project, which will only be launched in end-May, may flow in later.

• Below expectations. IOI Properties Group’s (IOIPG) 3QFY15 (Jun)earnings came in below our and market expectations, with core net profit making up 66% and 63% of our and consensus estimates respectively.Although revenue for the property investment division grew 37% QoQ, its operating margin contracted to 36% from 57% in the previous quarter. This could be due to the expenses incurred by the newly-completed Tower 4 and 5 in Puchong Financial Corporation Centre (PFCC), which have not been fully tenanted, as well as upfront expenses for IOI City Mall Putrajaya. Similarly, the margin for property development division also shrank to 28% from 38% in the last quarter.
• MYR390m new sales in 3QFY15. IOIPG chalked up MYR390m newsales in 3QFY15, up from MYR272m in 2QFY15, bringing 9MFY15 total to MYR1.03bn. About 90% of the sales were contributed by projects from Malaysia, 9% mainly from The Trilinq in Singapore, and the remaining 1% from China. During the quarter, apart from Bandar Puteri Bangi, IOIPG also launched some landed properties in Bahau (GDV: MYR30m) and Segamat and Taman Lagenda Putra (combined GDV: MYR70m). There could be some 5-10% downside to our sales forecast of MYR2bn, as the take-up in the China Xiamen IOI Palm City project (GDV: MYR1.24bn) may take time to be converted into contract sales, given that it will only be launched in end-May.
• Forecasts. In view of weaker-than-expected margins, we lower our FY15-17 earnings forecasts by 6-8%. Unbilled sales remained steady at MYR1.5bn, compared with MYR1.45bn in 2QFY15.
• Maintain NEUTRAL. We maintain our NEUTRAL rating on the stock, with an unchanged MYR2.25 TP, based on a 50% discount to RNAV.Near-term catalysts for the sector are lacking and property sales in April were weak after the goods and services tax (GST) kicked in.