Review

• Excluding the reversal of inventories written down of RM29.0mn, IOIPG’s 9MFY24 normalised net profit of RM487.2mn came in within ours but below consensus’ full-year forecast, accounting for 66% and 64% of our and consensus’ full-year forecasts, respectively. We consider the results to be in line with our expectations, anticipating an uptick in construction progress, stronger sales from China, and a positive turnaround in the group's leisure and hospitality (L&H) segment in 4QFY24.

• YoY: IOIPG’s 9MFY24 revenue grew 12% YoY to RM2.2bn, primarily driven by higher revenue from Malaysia operations, which includes land sales totalling RM211.1mn concluded in Johor. However, the normalised net profit of RM487.2mn for 9MFY24 was 8% lower than the preceding year, mainly due to reduced profit from China operations and increased depreciation and operating costs from the newly opened Moxy Hotel under the hospitality sub-segment. Nevertheless, the impact was partly cushioned by a robust performance in the property investment segment, which experienced a notable 43% YoY increase in operating profit. This growth was fuelled by the high occupancy rates observed at IOI City Mall Phase 2.

• QoQ: 3QFY24 normalised net profit surged 57.4% to RM191.2mn, in tandem with a 49% growth in revenue. The enhanced sequential performance was primarily attributed to improved performance in both the property development and property investment segments, as previously highlighted.

• IOIPG’s 3QFY24 new sales decreased by 5% YoY and 28% QoQ to RM419mn, bringing the 9MFY24 new sales to RM1.59bn (+16% YoY). This was within the management’s sales target of RM2.0bn. Out of the RM1.59bn in new sales, 92% came from Malaysia, with only 8% from overseas. Notably, RM1.59bn sales for 9MFY24 include the RM365mn land sales in Johor and Melaka. Excluding these land sales, IOIPG’s total property sales for 9MFY24 would have declined by 11% YoY. The latest unbilled sales stood at RM688mn (vs RM722mn a quarter ago).

Impact

• No change to FY24-26 earnings forecasts. Briefing Highlights

• Management holds an optimistic outlook on achieving its FY24 sales target of RM2.0bn. In 9MFY24, the group successfully launched new products totalling RM2.8bn, with a take-up rate of 37%. Heading into 4Q, IOIPG will concentrate on converting the RM475mn in bookings into confirmed sales and increasing take-up rates for ongoing projects.

• Despite the sluggish economic outlook in China, recent policy changes by the People’s Bank of China, including the abolition of minimum mortgage interest rates and the reduction of minimum downpayment requirements for first and second homebuyers, aim to stimulate the real estate market. In response, IOIPG remains committed to driving the sales of completed units, strategically positioning the group to instil greater confidence in house buyers seeking properties for immediate use. This strategy has shown positive results, with property sales in China progressively improving from RM14mn in 1Q to RM33mn in 2Q, and further increasing to RM71mn in 3Q.

• The official launch of Marina View in Singapore is anticipated to be by end of this year, as IOIPG is presently engaged in negotiations with a prominent hotel chain to rebrand the project into an ultra-luxury condominium project. In response to this development, the management intends to market the project at a selling price of SGD5,000psf, signifying a potential GDV of SGD3.5bn. However, we expect the project to receive a tepid response initially due to the cooling measures imposed by the Singapore government last year.

• Management anticipates improved performance in the retail and hospitality sectors. The commencement of operations at IOI City Mall Phase 2 on August 25, 2022, is expected to drive earnings in the retail segment. Simultaneously, increased tourism activities have benefited the L&H segment, resulting in higher occupancy rates and average daily room rates. Furthermore, the recently acquired W Kuala Lumpur and Courtyard by Marriott Penang along with the opening of Moxy Hotel Putrajaya, are poised 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 Temporary Occupation Permit (TOP) in April 2024. Following this, anchor tenants have commenced their fit-out activities, with income contributions expected to begin in the coming quarter. IOIPG targets obtaining full TOP for the buildings by September 2024. It was reported that about 40% of IOI Central Boulevard Towers’ net lettable area of 1.3mn sq ft has been committed.

Valuation

• We like the IOIPG’s significant value within its investment properties portfolio, especially upon the completion of IOI Central Boulevard Towers. In a recent interview, IOIPG's CEO stated that this prized asset in Singapore is estimated to be worth at least SGD6.0bn (RM21.0bn), with a valuation of SGD4,500psf. This valuation exceeds the group’s current market capitalisation of RM13.4bn.

• In line with the property sector re-rating, we increase our target P/Bk multiple to 0.7x (previously 0.65x) to match the average target P/Bk assigned to larger developers under our coverage. This adjustment leads to a new target price of RM3.00/share (previously RM2.79/share). Maintain Buy.

Source: TA Research - 31 May 2024