4QFY20 CNP of RM173m lifted FY20 CNP to RM619m, above market expectations from stronger-than-expected sales contributed by their China operations. Introduce FY22 earnings of RM691m and maintain OP with an unchanged TP of RM1.29 based on 0.4x PBV.

Above expectations. 4QFY20 CNP of RM173m lifted FY20 CNP to RM619m, above ours and consensus expectations accounting for 116% of estimates. The positive deviation stems from stronger-thanexpected property sales in 4QFY20 worth RM0.7b lifting cumulative FY20 sales to RM1.84b (against our FY20 target of RM1.4b). The stronger sales were mainly attributed to pent up demand at China, which saw the recent 4QFY20 launch at Palm Bay City, China receive excellent take ups (of 70%). That said, FY20 dividend of 1.5sen is below our full year estimate of 3.0sen.

Highlights. In contrary to other developers which saw the recent quarter plummet due to MCO lockdowns, IOIPG’s 4QFY20 CNP of RM173m leapt 111% QoQ on higher revenue (+52%) as their property development’s EBIT registered +205% increase from stronger China sales as mentioned above. Out of the RM0.7b sales made in 4QFY20, China contributed a bulk at 61% of sales (RM426m).

Note that for properties in China, IOIPG will only launch their products when construction is >50%, resulting in lumpy revenue recognitions. For the recent launch of high rise at Palm Bay City, construction was already at c.80% prior to launch.

YoY, FY20 CNP of RM619m was down marginally by 4% mainly dragged by the Covid-19 lockdowns which affected their property investment and hospitality segment while property development cushioned the fall from stronger China contributions which commands higher margins.

Outlook. During the MCO period ie 4QFY20, IOIPG had provided subsidies to their mall and office tenants but have since resumed normal collections. For the upcoming 2 years, its property investment would add on 3.4m sf (+58%) of NLA while its hospitality division would add on 865 keys (+46%). While Covid-19 post uncertainties for now, we feel the situation would eventually normalise and these assets would strengthen the groups recurring income base. Unbilled sales stood at RM607m while unsold properties were at RM2.2b as of 4QFY20.

Earnings. Despite coming in above on stronger sales, we keep our FY21E estimates unchanged as bulk of the sales outperformance were from China – which were mostly recognise in the revenue of 4QFY20 itself. Meanwhile, we introduce our FY22E earnings of RM691m. Our sales target for FY21/22E are at RM1.9b respectively.

Maintain OP with unchanged TP of RM1.29 based on 0.4x PBV (- 1.0SD below 5 year mean). Despite the temporary setback from Covid- 19, valuations are appealing given IOIPG’s recurring income derived from well-located assets and their geographical diversification which provides resilience to earnings

Risks to our call include: (i) weaker-than-expected property sales arising from a prolonged US-China trade war and Covid-19 pandemic, (ii) margin compressions, (iii) changes in real estate policies/lending environments, and (iv) M&A/privatisation/cashcalls.

Source: Kenanga Research - 1 Sept 2020