Review

• IOIPG reported a normalised net profit of RM295.9mn in 1HFY24, which accounted for 40% and 39% of our and consensus’ full-year forecasts, respectively. However, we deem the results to be within expectations, as the group is expected to recognise a total of RM365mn revenue from land sales in 2HFY24. Furthermore, we anticipate a positive turnaround in the group's leisure and hospitality (L&H) segment in 2HFY24, propelled by the phased reopening of the two hotels in IOI Resort City after refurbishment, along with additional income contributions from recently acquired hotels.

• YoY: IOIPG’s 1HFY24 normalised net profit decreased by 29% YoY to RM295.9mn. This was predominantly attributed to a 42% decline in operating profit within the property development segment due to reduced sales in China. Nevertheless, the impact was partly cushioned by a robust performance in the property investment segment, which experienced a notable 40% YoY increase in operating profit. This growth was propelled by the high occupancy rates observed at IOI City Mall Phase 2. On the other hand, the L&H segment reported an operating loss of RM4.4mn compared to an operating profit of RM3.9mn in 1HFY23. This was largely due to on-going refurbishment exercises at Palm Garden Hotel, and Putrajaya Mariott Hotel in IOI Resort City Putrajaya.

• QoQ: 2QFY24 normalised net profit plunged 30% to RM121.5mn, primarily due to decreased contributions from the property development segment, notably in China. Additionally, the share of losses, as opposed to a profit recorded in the previous quarter, by its joint venture partner in Singapore also contributed to the decline.

• IOIPG’s 2QFY24 new sales increased 22% YoY but dropped 1% QoQ to RM582mn, bringing the 1HFY24 new sales to RM1.2bn (+26% YoY). This was within the management’s sales target of RM2.0bn (exclude Marina View, Singapore). Out of the RM1.2bn in new sales, 95% derived from Malaysia, with only 5% from overseas. The latest unbilled sales stood at RM722mn (vs RM509mn a quarter ago).

Impact

• We revise our sales assumption for FY24 from RM3.4bn to RM2.06bn in light of the official launch of Marina View being delayed until FY25. While maintaining our sales assumptions for FY25 and FY26 at RM3.7bn and RM3.8bn, respectively, this adjustment has resulted in a 5% and 3% reduction in our earnings projections for FY25 and FY26, respectively. Briefing Highlights

• The official launch of Marina View in Singapore is anticipated to be postponed to FY25, as IOIPG is presently engaged in negotiations with a prominent hotel chain to rebrand the project into an ultra-luxury condominium project. In response to this development, the management intends to market the project at a selling price of SGD5,000psf, signifying a potential GDV of SGD3.5bn. This marks a substantial 36% increase from the previously guided GDV of SGD2.58bn. Based on reports suggesting that ultra-luxury condominiums such as Skyline @ Orchard Boulevard and Sculptura Ardmore, situated in the core central region, fetched resale prices exceeding SGD5,000 psf in 2023, we believe the intended selling price of SGD5,000 psf can be justified. However, we expect the project to receive a tepid response initially due to the cooling measures imposed by the Singapore government last year.

• Management anticipates improved performance in the retail and hospitality sectors for FY24. The commencement of operations at IOI City Mall Phase 2 on August 25, 2022, is expected to drive earnings in the retail segment. Simultaneously, increased tourism activities have benefited the L&H segment, resulting in higher occupancy rates and average daily room rates. Furthermore, the recently concluded acquisition of W Kuala Lumpur in February 2024, along with the expected finalisation of the Courtyard by Marriott Penang acquisition in April 2024, is poised to enhance the group's hotel portfolio and strengthen the L&H segment with immediate recurring income streams.

• IOI Central Boulevard Towers in Singapore building is slated to receive the first phase of temporary occupation permit in Mar-24 (3QFY24). It was reported that about 40% of IOI Central Boulevard Towers’ net lettable area of 1.3mn sq ft has been committed, with another 20% in advanced stages of negotiation. Management anticipates a more substantial contribution from Central Boulevard starting from FY25 onward, considering that anchor tenants usually demand a fit-up period of approximately 6 to 9 months.

Valuation

• We like the IOIPG’s significant value within its investment properties portfolio, especially upon the completion of IOI Central Boulevard Towers. In a recent interview, IOIPG's CEO stated that this prized asset in Singapore is estimated to be worth at least SGD6.0bn (RM21.0bn), with a valuation of SGD4,500psf. This valuation exceeds the group’s current market capitalisation of RM12.5bn.

• Rolling forward our valuation base year to CY25, we arrive at a new TP of RM2.79/share (previously RM2.09/share), based on a higher P/Bk multiple of 0.65x (previously 0.5x). Maintain Buy.

Source: TA Research - 29 Feb 2024