Review

• Adding back the foreign currency translation loss on foreign denominated borrowings and deposits of RM52.1mn IOIPG reported normalised net profit of RM188.8mn in 1QFY20. Results beat ours but within consensus expectations, accounting for 30% and 26% of ours and consensus’s fullyear earnings forecasts. The variance was largely due to: 1) lower-thanexpected selling, general and administrative (SG&A) expenses, and 2) higher share of profit in joint controlled entities (JCEs).

• 1QFY20 normalised net profit surged 21% YoY and 67% QoQ to RM188.8mn, boosted by: 1) higher EBIT margin (+6.6%-pts YoY and +7.9%-pts QoQ to 54.6%), 2) higher share of profit in JCEs mainly arising from the sale of South Beach Residences in Singapore, and 3) overprovision of expenses in the previous financial year. We understand that the higher margin was contributed by higher revenue recognition from China projects.

• IOIPG’s 1QFY20 new sales declined 32% YoY and 29% QoQ to RM390mn, largely due to the lack of new launches. Of the RM390mn new sales, 56% were derived from Malaysia and 44% from China. Latest unbilled sales stood at RM750mn.

Impact

• No change to our FY20/21/22 property sales of RM2.0bn/RM2.2bn/2.4bn respectively. However, we raise FY20/21/22 earnings by 12%/9%/5% respectively, as we assume: 1) higher share of profits of JCE, largely from higher sale of its 49.9%-owned South Beach Residences, and 2) lower SG&A expenses assumptions and thus increase our EBIT margin by 3-4%- pts.

Outlook

• While there is no official sales target set for FY20, management intends to benchmark it with the sales numbers achieved in FY19 (RM1.9bn) and continues to strive for better sales performance. Management expects property sales to be mainly derived from bread and butter townships.

• In terms of products offering, management will focus on the affordable housing segment. Notably, the recent launch of affordable high-rise residential development in Warisan Puteri, Sepang was well-received. The project, Alanis, comprises 1,255 partially furnished units in four blocks with first block (Block C) offering 402 units. Launched in Sep, units in Block C have been almost sold out (priced start from RM227k or RM378psf).

• Meanwhile, management also anticipates 2 projects in Xiamen (planned launches of RM1.5bbn) to drive FY20 sales performance. Note that the group has unveiled the maiden phase of Xiang An project in July. Featuring 36 units of town villa with a potential RM140mn GDV, the project is

Valuation

• Post earnings revision, we raise our target price to RM1.45/share (previous RM1.40 /share), based on an unchanged target average blended CY20 PE/PB of 9x/0.5 x. Maintain Buy.

Source: TA Research - 26 Nov 2019