Benchmarked against UEM Sunrise’s floor valuation of 0.55x P/BV, we expect IOI Properties to stage a rebound given its current low P/BV of 0.54x. Upgrade to TRADING BUY, with a MYR2.38 TP (from MYR2.15, 24% upside). While the property market outlook remains challenging, we note that IOI Properties is backed by 11,000 acres of development landbank, and recurring income-generating investment properties with a book value that makes up 45% of its current market cap.

IOI Properties – a big-cap rebound play. Admittedly, the broad property sector has yet to turn positive given the ongoing macro and political issues affecting the market. However, value has emerged for some property stocks. UEM Sunrise (UEMS MK, NEUTRAL, TP: MYR0.95) recently rebounded strongly by >40% from its all-time low 0.55x P/BV. Therefore, among the big-cap property stocks that we cover, we expect IOI Properties to also bounce back – given its similar floor valuation of 0.54x P/BV. As the negatives have been priced in and value has emerged, we upgrade the stock to TRADING BUY with a higher TP of MYR2.38 (from MYR2.15, premised at a 55% discount to RNAV).

Heavily backed by landbank and assets. Weak property sales aside, we believe investors should seize the opportunities found in the current cheap valuations to accumulate value stocks. IOI Properties is currently backed by 11,000 acres of development landbank and a pool of recurring income-generating investment property assets that include IOI City Mall Putrajaya and IOI Mall Puchong, as well as a few hotel and office blocks – these underpin 15-20% of its EBIT. Stripping off the MYR3.4bn book value of the investment assets from its current market cap of MYR7.4bn, this implies that its remaining development landbank is valued at only MYR8.40 psf. This appears rather low, given that it still has >1,000 acres of landbank in strategic Klang Valley areas like Puchong, Putrajaya, Bangi and Kota Warisan.

Xiamen to mitigate downside in local property sales. IOI Properties should be able to support its annual property sales with its Xiamen project. Its Xiamen 2 Phase 1 project has thus far achieved a >90% take-up rate, while Phase 2 will be rolled out in FY16 (Jun). Upgrade to Trading Buy. At the current price, the stock is trading at a 60% discount to RNAV, which could be too low for a big-cap property stock. Our new MYR2.38 TP is based on a lower 50% discount to RNAV.

SWOT Analysis

Company Profile

he property arm of IOI Corp, IOI Properties Group 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.

Recommendation Chart

Source: RHB Research - 17 Sep 2015