Review

• IOIPG’s FY24 normalised net profit of RM609.1mn fell short of expectations, meeting 82% of our forecast and 86% of the consensus. This shortfall was mainly due to lower-than-expected margins in property development division, along with the leisure division's anticipated turnaround not materialising in 4Q.

• Our normalised net profit excludes a RM29.0mn reversal of inventory write-downs included in the JV’s results, a RM1,888.6mn fair value gain on investment properties, and adds back a RM110.6mn impairment loss related to a hotel under construction in China, a RM227.8mn inventory write-down for the Xiang’an, Xiamen project, a one-off depreciation charge of RM97mn due to a review of the useful life of certain hotel assets, and other impairments totalling RM125.2mn.

• Reflecting the earnings miss, the board declared an interim dividend of 5.0sen, slightly below our 5.5sen/share projection (FY23: 5.0 sen/share).

• YoY: IOIPG’s FY24 revenue grew 13% YoY to RM2.9bn, driven by higher Malaysian operations, including RM211.1mn in land sales in Johor. However, normalised net profit of RM609.1mn was 3% lower than the previous year due to reduced profit from PRC operations and higher costs from the newly opened Moxy Hotel. Despite this, strong property investment performance, with a 55% YoY increase in operating profit, partly offset the decline, supported by high occupancy at IOI City Mall Phase 2 and contributions from IOI Central Boulevard Towers after its phase 1 Temporary Occupation Permit (TOP) in April 2024.

• QoQ: 4QFY24 normalised net profit decreased by 37% QoQ to RM120.6mn, alongside a 13% drop in revenue. This decline was mainly due to weaker performance in the property development and leisure & hospitality (L&H) segments, as mentioned above.

• IOIPG’s 4QFY24 new sales decreased by 7% YoY but rose 23% QoQ to RM556mn, bringing the FY24 new sales to RM2.14bn (+9% YoY). This was in line with the management’s sales target of RM2.0bn and our sales assumptions of RM2.06bn. Out of the RM2.14bn in new sales, 90% came from Malaysia, with only 10% from overseas. Notably, RM2.14bn sales for FY24 include the RM365mn land sales in Johor and Melaka. Excluding these land sales, IOIPG’s total property sales for FY24 would have declined by 9% YoY. The latest unbilled sales stood at RM717mn (vs RM688mn a quarter ago).

Impact

• We revise our FY25 and FY26 earnings estimates downward by 16% and 11%, respectively, to reflect lower development margins and anticipated higher interest expenses following the completion of Central Boulevard Towers.

• We forecast a net profit of RM1,011mn (+7% YoY) for FY27, with new property sales assumptions of RM4.4bn (+15% YoY). Briefing Highlights

• Although no official sales targets have been set for FY25, management anticipates significantly stronger sales driven by the launch of Marina View in Singapore by the end of this year (2QFY25). The project’s GDV is SGD3.5bn, based on a selling price of SGD5,000psf. Management targets to achieve 30% take up rates within the first year of launch. Excluding Marina View, management expects steady sales of RM2.0bn to be achievable, based on historical sales performance and the strong reception of its core township products.

• Management anticipates improved performance in the retail and hospitality sectors. The retail segment is set to expand its retail offerings by an additional 1.05mn square feet of net lettable area with the acquisition of Tropicana Gardens Mall (TGM), targeted for completion by 3Q FY25. Based on its proven track record of managing retail properties, the group is confident in unlocking TGM’s full potential.

• Simultaneously, increased tourism activities have boosted the Leisure & Hospitality (L&H) segment, leading to higher occupancy and average daily room rates. Additionally, the recent acquisitions of W Kuala Lumpur and Courtyard by Marriott Penang, along with the opening of Moxy Hotel Putrajaya, are set to enhance the group's hotel portfolio and strengthen the L&H segment with immediate recurring income streams.

• IOI Central Boulevard Towers received the first phase of its TOP in April 2024, allowing anchor tenants to begin their fit-out activities, with income contributions starting in 2Q24. IOIPG aims to obtain full TOP for the buildings by September 2024. Approximately 50% of the Towers' 1.3mn sq ft net lettable area has already been committed, with another 20% in advanced negotiations. Management is targeting an 80% occupancy rate by the end of this year.

• Separately, IOIPG announced that its Board, excluding interested parties, has declined the offer from CEO and major shareholder Lee Yeow Seng to purchase Shenton House, a commercial property in Singapore. The decision was made after considering IOIPG’s significant exposure to the Singapore market and ongoing capital commitments from recent acquisitions. Instead, IOIPG subsidiaries will manage the redevelopment of the property as the sole project and property managers.

• We view this decision positively. It preserves IOIPG's financial flexibility, maintains a manageable gearing ratio, and allows the group to focus on high-priority projects like IOI Central Boulevard Towers and Marina View. The management agreements provide a revenue stream without increasing property holding costs or gearing, while also granting IOIPG a right of first refusal on future sales or joint ventures involving Shenton 101, keeping the group strategically positioned for future opportunities.

Valuation

• We maintain our Buy recommendation on IOIPG with a revised target price of RM3.02/share (previously RM3.10/share). Our valuation is based on P/Bk multiple of 0.65x against its CY25 BPS, slightly below the stock’s peak valuation of 0.71x since its listing in 2013 and a 3% ESG premium incorporated into our TP.

Source: TA Research - 29 Aug 2024