• Maintain BUY and MYR1.38 TP, 37% upside and 3% FY22F (Jun) yield. IOI Properties’ 3QFY22 results missed expectations, largely due to the MYR111m write-off for the XiangAn project in China. 9M property sales reached MYR1.3bn, and management expects to hit MYR2bn property sales by end FY22. We remain positive on the leasing prospects for the company’s Central Boulevard office in Singapore. The property, which is scheduled to be completed in 2HCY23, is expected to lift IOIPG’s earnings for the investment property division significantly.

• 3QFY22 results. The stronger revenue for the property development division was largely attributed to higher billings from ongoing projects, as well as higher number of vacant possession of completed projects as construction activities in the past have been disrupted by multiple lockdowns in Malaysia. However, earnings for the division was affected by MYR111m write-off for the XiangAn project. Meanwhile, performance for the property investment division continued to improve, due to lower rental rebates being offered to tenants following the re-opening of the economy. Net gearing crept up to 0.72x vs 0.69x in the previous quarter.

• Slower property sales in 3QFY22. New property sales achieved MYR417.9m in 3QFY22, vs MYR646.4m in 2QFY22. The slower sales in Jan-Mar 2022 were within expectations given the expiry of the Home Ownership Campaign in Dec 2021. As 9MFY22 new sales only reached MYR1.31bn, management is hopeful that the Xiamen project will be the key sales contributor in 4QFY22, as about MYR960m worth of properties were launched in China in Dec 2021. However, we are somewhat conservative given the prevailing lockdowns in China, although the restrictions in Xiamen are relatively minor.

• Update on Central Boulevard office. We expect the Central Boulevard office space in Singapore to be well-received. The building is scheduled to be completed in 2HCY23, and recently, it was reported that Amazon is currently in advanced negotiations to take up 350,000 sqf (about 27% of total NLA of the property). We estimate that Central Boulevard could potentially generate a whopping MYR350-450m in rental income per year, assuming a conservative rental rate of SGD10-11 psf.

• Forecast. We cut our FY22 earnings forecast by about 5% given the MYR111m write-down. Unbilled sales fell to MYR537m vs MYR787.3m as at 2QFY22.

• Maintain TP. Our TP is based on an unchanged 65% discount to RNAV, and includes a 6% discount given IOIPG’s ESG score of 2.70.

Source: RHB Research - 26 May 2022