IOIPG’s 9MFY24 results met expectations. Its 9MFY24 core net profit fell 3% as a lumpy land sale in Kulai was negated by a soft property market in China. We expect good response to its high-value projects in Singapore while its property investment and hospitality assets are fetching decent yields. We maintain our forecasts, TP of RM1.75 and maintain our UNDERPERFORM call.

Its 9MFY24 core net profit of RM516.2m made up only 66% and 69% of our full-year forecast and the full-year consensus estimate, respectively. However, we consider the results within expectations as we expect a bumper 4Q with lumpy profits from its high-end projects in Singapore.

YoY, its 9MFY24 revenue rose 12% driven mainly by RM211m land sale in Kulai. However, its core net profit eased 3% weighed down by: (i) a significant slowdown in China (of which products typically command higher margins) and (ii) lower JV contributions due to higher property tax on the hotel operations in Singapore. These were partially cushioned by higher rental incomes from the malls and improved occupancy rates for its hotels and resorts.

QoQ, its 3QFY24 revenue rose 49%, similarly, driven by the lumpy land sale. Its core net profit jumped by a steeper 81%, underpinned by lumpy land sale gain and higher rental incomes and sustained occupancy rates at its investment properties.

The key takeaways from its results briefing are as follows:

1. On Marina View Residence in Singapore, the group is prioritizing its planned launch for this year. Although construction has not commenced, the completion deadline is set at 84 months post- launch. The focus is on initiating the property's launch, with expectations of long-term earnings.

2. IOI Central Boulevard is set to receive the final phase of Temporary Occupation Permit in September CY24, in which will allow tenants to come in for renovations once received. The group has already secured leases with internationally renowned companies spanning various industries, including technology, financial services, asset management, FMCG, and legal firms with secured tenancy close to 50%. The focus lies on completing construction and increasing the occupancy rate of the project, which is expected to contribute based on uptake. The construction phase is estimated to last for approximately 3-4 years, resulting in long-term earnings.

3. The occupancy rate of IOI City Mall continues to be remarkable, maintaining an average of 97% across the group's entire mall portfolio. Currently, careful market analysis is being conducted to prevent overcrowding from excessive retail spaces.

4. In the hospitality and leisure sector, the group continues to capitalise on tourism activities with additional contributions from their new Moxy Hotel and W Kuala Lumpur which came onboard in CY2024. These additions have enhanced the group's portfolio, increased occupancy rates, and strengthened its market presence in key tourist destinations.

Forecasts. Maintained.

Valuations. We also maintain our RNAV-TP of RM1.75 based on a 60% discount to its RNAV (see Page 3), in line with our average assumption for the broader property sector. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like IOIPG due to: (i) its focus on high-value products at matured townships with its well-diversified products, (ii) its expanding investment property portfolio which provides recurring incomes, and (iii) its presence in the vibrant property sector in Singapore. However, its valuations have become rich after the recent run-up in its share prices. Maintain UNDERPERFROM.

Risks to our call include: (i) a stronger-than-expected recovery in the property market in China, (ii) mortgage rates ease, boosting affordability, (iii) benign construction cost, and (iv) good management of risks associated with overseas operations.

Source: Kenanga Research - 31 May 2024