• Maintain NEUTRAL and TP of MYR2.15, 3% downside with c.2% FY25F (Jun) yield. IOI Properties’ 1QFY25 results missed expectations. Earnings were largely hit by IOI Central Boulevard Towers’ (IOICBT) interest costs that have been expensed out, while rental contributions lagged as occupancy rates take time to ramp up. Our earnings outlook for the next few quarters remains cautious, as more meaningful contributions from IOICBT may only come from FY26 onwards. In the meantime, net gearing is expected to rise further as construction works ramp up at its Marina View Residences project.

• 1QFY25 results. IOIPG’s property development segmental revenue softened QoQ due to weaker property sales. However, the stronger revenue from the property investment division was led by contributions from IOICBT (MYR55m in 1QFY25 and MYR40m in 4QFY24), while the leisure & hospitality unit’s turnover was driven by the newly acquired Courtyard by Marriott Penang. Overall earnings were hit by the significant spike in interest expense, as IOICBT’s interest cost was expensed out after it partially received its temporary occupation permit in April. Note: 4QFY24 earnings were affected by several items, including a MYR228m inventory write-down for the Xiang An project, MYR111m impairment on PPE due to increased depreciation and write-offs on certain hotel assets, and a MYR1.889bn fair value gain on investment properties. Net gearing eased slightly to 0.69x, from 0.7x in the previous quarter.

• Lacklustre sales in 1QFY25. IOIPG’s total property sales only reached MYR331m, vs MYR554m in 4QFY24. Projects in the Klang Valley and Johor amounted to MYR217.6m and MYR99.8m in sales. During the quarter, the company had its partial launch of W Residences in Singapore, whereby the 32 units (out of the total 683 units) launched were featured to specially invited potential purchasers. No sales have been booked yet, and we expect this to be slow, due to the project’s expensive price point and density of units. Still, management is maintaining its MYR2bn sales target, which excludes contributions from Marina View. We expect some sales from the industrial segment to be generated in FY25, as management recently launched its series of industrial park projects in Kulai (an additional 600 acres), Banting (322 acres) and Melaka (200 acres).

• We cut FY25F and FY26F earnings by 15% and 3% to account for the impact of interest expense from IOICBT. Although the committed occupancy rate currently stood at 68% (targeted to hit 70% by end-2024), there is still a gap to cross before it reaches the breakeven occupancy rate of 85%. Unbilled sales remained stable at MYR711m, vs MYR717m as at 4QFY24.

• Maintain TP. Our TP is based on a 60% discount to RNAV, and includes a 2% discount – due to our ESG score of 2.9 out of 4 for the company.

Source: RHB Securities Research - 26 Nov 2024