• Maintain NEUTRAL, with new TP of MYR0.35 from MYR0.36, 6% upside plus 3% yield, based on a 70% discount to RNAV. IBHD’s earnings missed expectations as sales continued to underperform due to the lack of new project launches to date. We continue to be mildly optimistic despite the missed earnings due to potential contributions from its investment properties ie the newly-launched Central i-City Shopping Centre, and the upcoming DoubleTree Hotel and Corporate Office Tower.

• Results below expectations. 1H19 net profit of MYR17.3m missed – making up 39% of our estimates. 2Q19 revenue fell 61% largely due to a 68% QoQ drop in the contribution from the group’s property development segment, on the back of a lack of new project launches YTD. As a result, 1H19 net profit plunged 63% YoY. Sluggish sales persisted, as demonstrated by the new sales of only MYR12m booked for the quarter, a marginal dip compared to c.MYR13m in 1Q19. Unbilled sales reported for the quarter stood at MYR123.5m, from MYR138m as at 1Q19.

• Property development a cause for concern. The take-up rate for the group’s Hill 10 Residence – the last project to be launched back in 2017 – stood at c.94%. Meanwhile, the take-up rate for 8Kia Peng (launched FY16) increased marginally to 25% from 23% in the previous quarter. 8Kia Peng is targeted to be completed by the end of the year, with construction progress reaching around 73% during the quarter. In addition, IBHD is set to launch Hill 11 residence (GDV: MYR278m) and Hill 12 residence (GDV: MYR218m) by the end of the year. These projects should receive encouraging demand given the popularity of the newly opened Central i-City mall.

• Investment properties to make up a bigger chunk of the group’s repertoire. One of the group’s investment properties, Central i-City Shopping Centre (total NLA: c.1m sqf), commenced operations in March, and has managed to attract quality tenants such as Sogo, Jaya Grocer and TGV Cinemas, as well as an impressive shopper crowd, as observed from our ground checks to the mall. The Corporate Office Tower, located in Plot 2, is targeted to be completed by year-end, and we think the contribution of rental income may only start kicking in in 2H20. Note that DoubleTree by Hilton is also scheduled to open its doors in 2021. IBHD has been focusing on building its recurring income portfolio by also investing in parking spaces within i-City.

• We slash our FY19F-20F earnings by 16-30%, in view of the weak results in 1H19, and adjust our TP slightly to MYR0.35 for house-keeping purposes, based on a 70% discount to RNAV. Upside risk is higher-than-expected earnings from the Central i-City Shopping Centre, while downside risk includes further delays in the launch of Hill 11 and Hill 12 residences.

Source: RHB Securities Research - 30 Aug 2019