IOIPG’s 9MFY23 net profit and sales met expectations. Sustained recovery in property investment and hospitality segments more than offsets the weakness in its China division. Over the immediate term, its earnings will be driven by Marina View Residences and Central Boulevard Towers in Singapore. We maintain our forecasts, TP of RM1.60 and OUTPERFORM call.

Within expectations. 9MFY23 core net profit of RM529m (after adjusting for RM470m fair value gain from IOI City Mall, impairment of RM35m, and RM193m of inventories reversal at the JV level) met expectations at 71% and 70% of our full-year forecast and consensus full-year estimates, respectively.

9MFY23 revenue increased 3% from stronger property investment and hospitality segment versus a pandemic-stricken period a year ago.  Nonetheless, PBT declined 17% on weaker property development margins as a result of: (i) lower contributions from high-margin China developments, (ii) higher operating expenses, and (iii) lower JV  contributions. All in, thanks to a lower effective tax rate (-16ppts), core  net profit managed to increase marginally by 3%.

The key takeaways from its briefing are:

1. 3QFY23 sales of RM443m led 9MFY23 sales to RM1,370m  (comprising RM1,143m in Malaysia, RM183m in China and RM44m  from Singapore) which came in-line with our and company’s RM1.9b  target. YTD, it has launched RM970m worth of properties with a  significant portion derived from Kulai, Johor (c.50%). It plans to launch c.RM200m worth of properties in Malaysia in 4QCY23. As at  end-March 2023, its unbilled sales stood at RM554m.
    
2. Its RM5b Marina View development in Singapore is slated for launching as planned in Oct 2023 despite the Singapore government’s hefty implementation of additional buyer’s stamp duty  (ABSD) on properties in late April 2023. IOIPG is not overly concerned over the ABSD which targets foreigners as it believes  Marina View Residences will attract Singaporean buyers. Meanwhile, its RM12b Central Boulevard Towers are on schedule  for completion in 4QCY23 and its secured leases have remained at  30%.
    
3. While there are green shoots of recovery in China, the pace has been slow. It plans to clear all its RM1.16b completed inventories in  China over the next 2-3 years before launching new ones.  Meanwhile, its 640k sf Xiamen Mall has seen footfall picking up in  March 2023 upon the easing of Covid-19 restrictions. Thereafter, it  plans to gradually remove the rental subsidies in June 2023  currently in place at the mall.

We maintain our forecasts and TP of RM1.60 based on 60% discount to RNAV which is in line with peers’ 60%-65% (see Page 3). There is  no adjustment to TP based on ESG given a 3-star ESG rating as appraised by us (see Page 5).

We like IOIPG for: (i) its expanding investment property portfolio that could eventually be monetised via a REIT, (ii) its vast land bank acquired at low cost that translates to above-average development margins in the industry, and (iii) its matured townships, enabling it to realize high-value products, particularly commercial. Maintain OUTPERFORM.

Risks to our call include: (i) a prolonged downturn in the local property market, (ii) rising mortgage rates hurting affordability, (iii) rising construction cost, and (iv) risks associated with overseas operations.

Source: Kenanga Research - 29 May 2023