• Maintain BUY and MYR1.46 TP, 36% upside and c.6% FY24F (Jun) yield. We remain positive on IOI Properties. IOI Central Boulevard’s committed tenancy in Singapore is likely at 50%, and this should increase further as management is targeting to hit >80% upon the office towers’ opening and rental commencement in early 2024. Medium-term earnings outlook will be underpinned by the strong recurring income growth from existing property assets, while the listing of investment properties into the REIT will be the longer term plan, making it the biggest share price catalyst.

• Committed tenancy for Central Boulevard may have reached 50%. Although management did not confirm this during our recent virtual meeting, it was reported that Morgan Stanley is in advanced discussion to take up five floors (about 100k sqf) in Central Boulevard, which would be completed by end-2023. Including Amazon, which according to media reports had signed a lease for about 369k sqf in the building, we estimate the committed tenancy to be at the 50% level. As such, we think this occupancy rate should be enough to cover the expected interest expense to be incurred for the underlying loan.

• “REIT-able” properties may worth MYR19bn. “REIT-ing” the investment property portfolio has always been the long-term plan since the re-listing of IOIPG in 2014. However, we believe the timing of the listing is crucial as it will be the key share price catalyst. Based on our rough estimate, IOIPG’s property asset portfolio may have a whopping MYR19-20bn in value, including Central Boulevard. If these assets are listed in Malaysia, it should be the biggest M-REIT by far, followed by KLCC Stapled (KLCCSS MK, BUY, TP: MYR7.79), which has an asset size of about MYR16bn as at FY22.

• 4QFY23 sales to be driven by local projects. We expect property sales contribution from China and Singapore to be slow over the medium term. As China is experiencing slower-than-expected growth post re-opening of its economy, IOIPG will concentrate on winding down the unsold completed units there over the next 1-2 years. Singapore will see the launch of Marina View in Oct 2023. Management is prepared to receive slower sales for this project upon the launch given the recent stamp duty hike. However, as the construction works and marketing efforts progress, sales are expected to pick up – similar to the trend of its South Beach Residences in the past.

• Valuation remains undemanding given solid recurring income growth. IOIPG’s share price has corrected recently, in tandem with the broader equity market, due to concerns over Malaysia’s political stability and economic growth outlook. We think the volatility will likely be short-lived, and sentiment will recover in the third quarter of 2023. IOIPG is still our sector Top Pick, and its earnings quality and growth prospects are the most solid among developers under our coverage. Our TP includes a 2% ESG discount given our ESG score of 2.9.

Source: RHB Securities Research - 20 Jun 2023