Overview

IOI Properties Group Bhd is one of the handful developers in Malaysia with established track record spanning more than two decades in the property development industry. It is principally involved in property development, property investment and leisure & hospitality related businesses.

Investment Themes

• Capitalise on the Still Hot Johor Thematic Play. IOIPG owns active land bank of 5,193 acres, with total potential GDV of RM67.3bn. Elsewhere, it also owns non-active land of approximately 3,000 acres which IOIPG has no development plans currently. IOIPG is wellpositioned to capitalise on the thriving Johor market, thanks to its extensive undeveloped landbank of 3,868 acres (GDV: RM7.9bn) and an additional 1,500 acres of non-core lands in Johor.

• Increasing Recurring Income Stream to Anchor Growth. In 9MFY24, the operating profit of property investment division surged by 43% YoY, driven by the robust performance of IOI City Mall Phase 2. We anticipate even stronger earnings growth upon the completion of Central Boulevard Towers (CBT) in Singapore in September 2024. We project the earnings of IOIPG’s property investment division to grow by 32% in FY25 and 19% in FY26, based on a conservative occupancy rate of 50% and 80%, and average monthly rental rates of SGD9 psf, compared to the latest asking rates of SGD11 psf. By FY26, we expect the property investment division to contribute 28% to IOIPG's revenue, a significant increase from 19% in FY23.

• Potential REIT-ting of its Investment Properties. We believe IOIPG is poised to establish a Real Estate Investment Trust (REIT), given its increasingly mature investment properties portfolio. While specific timelines and details regarding the REIT's IPO are not available, the carrying value of IOIPG's investment properties stands at RM18bn, according to the FY23 annual report. By creating a REIT, IOIPG can unlock value from its investment properties, reduce debt, and improve its balance sheet.

Risk

• The risks to our earnings forecasts are: 1) delay in roll-out of new launches; 2) project execution risks; and 3) cost escalation of construction materials and labour; and 4) unfavourable foreign exchange movement.

Recommendation

• Our TP for IOIPG is RM3.00 (ESG: ★★★★), based on 0.7x CY25 BPS. Maintain BUY.

Source: TA Research - 2 Jul 2024