• Maintain BUY and MYR2.10 TP, 22% upside and c.4% FY24F (Jun) yield. IOI Properties’ 1QFY24 results were below expectations. We expect earnings in the coming quarters to be stronger as year-end festivities should boost income for investment properties, and 2HFY24F should see gradual rental contribution from IOI Central Boulevard in Singapore upon its commencement of operations. Management is keeping its MYR2bn sales target, and bookings of MYR335m should provide some visibility on sales momentum going forward.

• 1QFY24 results. Sequential revenue for property development declined due to lower property sales from Malaysia and China. However, the property investment division saw significant growth YoY and QoQ, mainly driven by the high occupancy of IOI City Mall Phase 1 & 2, as well as other retail assets. Headline net profit in 4QFY23 was skewed by a few one-off items: i) MYR246.4m fair value gain, ii) MYR93.4m impairment loss on investment property, and iii) MYR18.5m inventories written down. Net gearing remained steady at 0.70x vs 0.68x in the last quarter.

• Decent property sales in 1QFY24. Property sales reached MYR587m vs MYR590m in 4QFY23. However, the recent MYR211m Kulai land sale (404 acres) made up 36% of the total. Including the land disposal, local projects contributed 98% of the total, while the balance is from projects in China. Bandar Putra Kulai, Taman Kempas Utama, Bandar Puteri Puchong and IOI Resort City remained the main sales contributors. In 1QFY24, IOIPG has rolled out MYR1.13bn worth of properties, of which MYR676m is from Conezion commercial in IOI Resort City. The overall take-up rate remains low at 36%, given the timing of launch (mainly in September). In the pipeline, the Marina View project will be launched in 3QFY24F, delayed from Oct 2023.

• Pick-up in unsold inventory due to re-classification. Unsold completed inventory rose to MYR2.72bn from MYR2.41bn in 4QFY23. Although the bulk of which is due to the unsold units in Xiamen, the increase was attributed to the reclassification of the commercial units in Conezion, which was previously grouped under investment property, but now under inventories, as well as the agriculture land in Kulai sold to Eco World (ECW MK, NR) that was under land held for development, now also under inventories. Excluding these reclassified items, unsold completed inventories should be at MYR2.25bn, as MYR159m worth of inventories were sold during the quarter.

• Forecasts. We maintain our FY24F-25F earnings, and expect the land sale to boost earnings and margin in 2HFY24F when the transaction is completed. Unbilled sales fell to MYR509m, from MYR623m as at 4QFY23.

• Maintain TP. Our TP is based on 55% discount to RNAV, and includes a 2% discount given our ESG score of 2.9 for the company.

Source: RHB Securities Research - 27 Nov 2023