Review

• IOIPG reported a 1QFY25 normalised net profit of RM69.2mn, falling short of expectations and achieving only 9% of both ours and consensus full-year forecasts. The underperformance was primarily attributed to weaker-than-expected contributions from the property development segment.

• YoY: IOIPG reported a 6% YoY increase in revenue to RM688mn, driven by strong performances in the property investment and hospitality segments, which offset weaker contributions from the property development segment. However, net profit fell 61% to RM69.2mn, largely due to the expensing of IOI Central Boulevard’s (IOICB) interest costs following the partial receipt of its temporary occupation permit.

• The property investment segment delivered an 87% YoY surge in operating profit, supported by the strong performance of IOI City Mall and initial rental income from IOICB. Meanwhile, the hospitality segment returned to profitability, driven by contributions from W Kuala Lumpur and Courtyard by Marriott Penang, as well as improved results from Palm Garden Hotel and Putrajaya Marriott Hotel after refurbishment.

• QoQ: 1QFY25 normalised net profit decreased by 43% QoQ, primarily due to weaker contributions from the property development segment and higher interest expenses following the completion of IOICB in April 2024.

• IOIPG’s 1QFY25 new property sales decreased 44% YoY and 40% QoQ to RM331mn. Of the total, 97% was contributed by Malaysian projects, with the remaining 3% from overseas. Notably, 1QFY25 sales included a one-off RM211mn land sale in Johor. Excluding this, property sales would have declined by a smaller 12% YoY. Unbilled sales as of the latest quarter stood at RM711mn, slightly down from RM717mn in the previous quarter.

Impact

• We revise our FY25/FY26/FY27 earnings estimates downward by 15%/8%/4%, respectively, to account for the lower contributions from the property development segment, primarily due to delays in the timing of new launches. Additionally, we have revised our rental contribution estimates for IOICB downward, factoring in staggered tenancy commencements and the impact of rent-free periods offered to tenants.

Conference Call Highlights

• Despite 1QFY25 new property sales achieving only 17% of the target, management remains confident in meeting its FY25 sales target of RM2.0bn for Malaysia, expecting stronger sales in the coming quarters supported by robust demand for its core township products.

• In 1QFY25, IOIPG launched RM569mn in GDV, including W Residences Singapore, Marina View (32 units, RM314mn GDV), and Aurelia, Senna Puteri (386 units, RM255mn GDV), while continuing to market RM1.7bn worth of projects launched in 4QFY24.

• For the rest of FY25, planned launches span residential, commercial, and industrial products. Highlights include the next phase of IOI Industrial Park @ Banting, featuring cluster, semi-detached, and bungalow factories, part of the IOI Industrial Park Series across Johor, Selangor, and Melaka, targeting strong industrial demand. Management also disclosed that letters of interest had been signed with data centre operators for industrial land in Banting and Kulai (80 acres each). In Johor, launches will focus on key townships such as Taman Kempas Utama, Bandar Putra Kulai, Bandar IOI Segamat, and Taman Lagenda Putra, supporting regional growth.

• Management expects continued strength in the property investment segment, particularly in retail. IOI City Mall remains a key driver with high occupancy and strong footfall. The upcoming acquisition of Tropicana Gardens Mall, slated for completion by 3QFY25, is set to enhance the segment’s expansion and recurring income. Additionally, IOIPG recently unveiled IOI Mall Rio in Bandar Puteri Puchong, a mega mall with one million square feet of net lettable area and over 300 retail outlets, expected to open by 2030.

• Increased tourism has boosted the hospitality segment, driving higher occupancy and average daily room rates. Recent acquisitions of W Kuala Lumpur and Courtyard by Marriott Penang, alongside the opening of Moxy Hotel Putrajaya and improved contributions from refurbished Palm Garden Hotel and Putrajaya Marriott Hotel, are enhancing the IOIPG’s hotel portfolio and strengthening the segment with immediate recurring income streams.

• IOI Central Boulevard Towers received the first phase of its Temporary Occupation Permit in April 2024, allowing anchor tenants to begin their fit-out activities, with income contributions starting in 2Q24. Committed occupancy has increased to 68% (from 50% in the previous quarter) of the Towers' 1.3mn sq ft net lettable area, and management is targeting a 70% occupancy rate by year-end.

Valuation

• Looking past the soft 1Q, we anticipate sequential improvements over the remaining quarters of FY25, driven by higher occupancy rates at IOICB, the recognition of RM154mn in land sales revenue from Melaka, and the maiden contribution from Marina View.

• We maintain our Buy recommendation on IOIPG with a revised target price of RM3.00/share (previously RM3.02/share). Our valuation is based on P/Bk multiple of 0.65x against its CY25 BPS, slightly below the stock’s peak valuation of 0.71x since its listing in 2013 and a 3% ESG premium incorporated into our TP.

Source: TA Research - 26 Nov 2024