Investment Highlights

• We maintain BUY on IOI Properties Group (IOIPG) with a unchanged RNAV-based fair value of RM2.83/share and neutr ESG rating of 3 stars .

• Our FV implies CY25F P/E of 16.5x, 2.5 standard deviation above its 4-year mean. We believe the premium to be justifie given significant contributions expected from recurrin income of IOI Central Boulevard upon its completion this yea Additionally, the launches of its major projects in Singapor namely Marina View Residences with a huge GDV of S$3.5b (RM12bil) further support substantial earnings growth movin forward.

• Lee Yeow Seng (LYS), IOIPG’s group CEO with a 65.7% indire equity stake, has offered the company to participate in related-party joint-venture to redevelop Shenton Hous , a commercial property at 3 Shenton Way Singapore, which LYS successfully tendered for S$538m (RM1.9bil) back in Nov 2023.

• LYS’ personal company Shenton 101 aims to carry out th redevelopment of Shenton House with an additional capit commitment of S$476mil (RM1.6bil), scheduled to start by en 2025. While Shenton 101 is able to proceed with th redevelopment planning with its own funds, LYS offer to IOIP aims to address potential conflicts of interest.

• Shenton House is located in Singapore’s central busines district on a 3,377-sq metre leasehold land with a gross pl ratio (GPR) of 11.2, remaining 44 years and potential extensio to a fresh 99-year lease. The purchase price translates to a fa S$1,998 psf per plot ratio (psf ppr), lower than Far Ea Shopping Centre’s S$3,350 psf ppr in Sep 2023.

• The property is seamlessly connected with Shenton Way MR Station and a short walking distance to Downtown, Tanjon Pagar, and Marina Bay MRT Stations. It is also well served b major roads and expressways, including Ayer Raja Expressway and Marina Coastal Expressway.

• According to the central business incentive scheme, th property is eligible for a 25% bonus gross floor area which ca be redeveloped into a mixed-use commercial-cum-residenti development or hotel at a GPR of 14.

• At this stage, the redevelopment cost and IOIPG’s JV stake the property has not been finalised.

• Assuming redevelopment accounts for 30% of project value, we estimate that the gross development cost could reach S$1.4bil (RM5bil). Based on debt financing ratio of 50% and 50% effective stake, we estimate that IOIPG could end up with a substantive capital outlay of RM1.3bil – 10% of the company’s current market capitalisation, potentially raising FY25F net gearing to 0.75x from 0.7x currently.

• Assuming prime office rental rates of S$11 psf currently and 50% allocation for net lettable area, we estimate a slight rental yield of 2.3% from this asset which may not materially accrete to IOIPG’s prospective earnings. Hence, we are neutral on this development pending the board’s decision on LYS’ offer and further disclosures on the project.

• The stock currently trades at a compelling CY25F P/E of 13x vs. its peers of 18x. We continue to like IOIPG for its:
  
  1) regional property development portfolio with a strong track record and successful real estate projects in Malaysia, Singapore (Sentosa Cove) and China (Xiamen),
  
  2) substantial contributions from recurring income of IOI Central Boulevard upon its completion in FY25F, along with launches of major projects in Singapore, namely Marina View Residences with a huge GDV of S$3.5bil (RM12bil), and
  
  3) promising growth prospects for its hospitality division, driven by the anticipated tourism resurgence in Malaysia.
  
  Additionally, we anticipate that the recent acquisition of W Kuala Lumpur and the forthcoming addition of Courtyard by Marriott Penang will further enhance the hospitality portfolio.

Source: AmInvest Research - 26 Jun 2024