Review

• IOIPG reported net profit of RM189.6mn in 1QFY17, which came in within expectations. The results accounted for 26% and 24% of ours and consensus full-year estimates respectively.

• 1QFY17 net profit surged 64% YoY to RM189.6mn, on the back of 51% growth in revenue. Property development division’s 1QFY17 revenue and operating profit grew 60% and 28% YoY to RM793.6mn and RM223.5mn respectively. The increase was driven by higher progress billings from ongoing projects in Malaysia, new townships in Malaysia such as Bandar Puteri Bangi, Bandar Puteri Warisan @ Sepang and The Conezion @ IOI Resort City, coupled with higher sales from overseas projects namely Trilinq, Singapore and IOI Palm City, Xiamen, PRC.

• Meanwhile, both the property investment and hospitality divisions saw a significant improvement in 1QFY17, with revenue and operating profit collectively climbing by 14% and 39% YoY to RM104mn and RM45mn respectively. The better performance was largely due to contribution from new assets such as IOI City Mall in Putrajaya, Fourpoint Sheraton Hotel & PFCC office tower 4 and 5 in Bandar Puteri Puchong and Le Meridien Hotel by Starwood, Putrajaya, which commenced its business operation in Aug 2016. Notably, the occupancy rate for IOI City Mall improved to 94% in 1QFY17, from 88% a year ago.

• After excluding fair value gains on investment properties of RM60.1mn and share of fair value gain on joint venture’s investment properties of RM119.6mn booked in in 4QFY16, IOIPG’s 1QFY17 profits were 9.6% lower on a QoQ basis. The decrease was mainly due to lower margins from the property development segment (-8ppt QoQ).

• IOIPG’s 1QFY17 new property sales jumped 141% YoY to RM730mn (flat on QoQ basis). Of the RM730mn new sales, 31% were derived from Malaysia, 20% from China and 49% from Singapore (as compared to Malaysia: China: Singapore, 58%: 25%: 17% in 1QFY16). The significant improvement was largely driven by recovery in sales of Trilinq project in Singapore with 97 units sold in 1QFY17 (vs 120 units sold in FY16). Unbilled sales slipped to RM1.5bn (from RM1.6bn a quarter ago) as at Sep- 16, providing the group with c. 1-year of earnings visibility.

Impact

• No change to our FY17-19 earnings forecasts. Our FY17/18/19 sales assumptions are RM2.4bn/RM2.7bn/RM2.7bn respectively.

Outlook

• The group plans to roll out some RM4bn worth of launches in FY17, including Trilinq in Singapore (remaining 255 units to be launched) and new phases within its key townships in Klang Valley and Johor

Management expect the FY17 sales to come within the range of RM2.3bn, driven by bread and butter townships such as Bandar Puchong Jaya, Bandar Puteri Puchong, 16 Sierra, Bandar Puteri Bangi, Kota Warisan and IOI resort City as well as Bandar Putri Kulai in Johor. We believe the group is on track to achieve RM2.3bn sales in FY17 as its 1QFY17 sales already accounts for 32% of management’s sales target.

• Near-term earnings visibility is expected to be underpinned by: 1) unbilled sales of RM1.5bn, and 2) additional recurring income from newly completed investment properties such as PFCC office tower 4 and 5 in Bandar Puteri Puchong, and IOI City Office Towers and Le Meridien Hotel in Putrajaya.

• The group has proposed a 1-for-4 rights issue at RM1.38, which should raise RM1.5bn. We believe the group’s frequency in going to its shareholders to raise funds could dampen investors sentiment given the immediate earnings dilution. In view of jittery global economy outlook, we are also concerned about the timing of the launch for the Central Boulevard development in Singapore. As such, we do not discount the possibility of another equity raising exercise in the near future due to heavy capital expenditure requirement for this development.

Valuation

• No change to our target price of RM2.16/share (ex-rights TP: RM1.98/share), based on unchanged target CY17 PER of 14x. Maintain Sell.

Source: TA Research - 23 Nov 2016