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This article first appeared in The Edge Financial Daily on November 27, 2018

IOI Properties Group Bhd
(Nov 26, RM1.65)
Maintain buy with a higher target price (TP) of RM1.86:
Adding back the foreign currency translation loss of RM43.8 million, IOI Properties Group Bhd’s (IOIPG)  first quarter ended Sept 30, 2018 (1QFY19) normalised net profit of RM155.8 million accounted for 19% and 22% of our and consensus full-year estimates. However, we deemed the results as within expectations as we’re expecting a stronger second half of the year, driven by higher progress billings from new launches in Singapore and China.

 

Year-on-year (y-o-y), 1QFY19 revenue and normalised net profit declined 37% and 36% to RM560.1 million and RM155.8 million respectively, largely due to lower contributions from the property development division. Segment-wise, the property development division’s 1QFY19 revenue and operating profit plunged 43% and 40% y-o-y to RM422.8 million and RM163.2 million respectively.

The softer results were largely due to lower profit contributions from development projects in Malaysia and lesser units available for sale in both Trilinq, Singapore. However, property development margin improved two percentage points y-o-y, contributed by higher profit recognition from the development projects in the Klang Valley and Johor.

Local development projects garnered higher margins largely due to cheaper land and construction costs. Meanwhile, the property investment and hospitality division’s revenue collectively grew 7% y-o-y in 1QFY19 to RM134.3 million. However, operating profit for the combined two divisions were flat at RM57 million, due to higher operating expenses incurred for newly completed investment properties.

IOIPG’s 1QFY19 new sales fell 15% y-o-y to RM574 million (+40% on quarter-on-quarter basis). Of the RM574 million in new sales, 46% were derived from Malaysia, China (49%) and Singapore (5%), compared with Malaysia, China, Singapore at 54%, 12%, 34% in 1QFY18. Unbilled sales increased to RM859 million as at Sept 18 versus RM648 million a quarter ago.

Management guided a more positive outlook for financial year 2019 (FY19). FY19 sales are expected to come within RM2 billion to RM2.2 billion (6% to 17% growth y-o-y). Management expects property sales to be derived mainly from bread-and-butter townships such as Bandar Puchong Jaya, Bandar Puteri Puchong, 16 Sierra, Bandar Puteri Bangi, Kota Warisan and IOI Resort City, as well as Bandar Putri Kulai in Johor. Management also anticipates two projects in Xiamen, with planned launches of RM1 billion, to drive FY19 sales performance.

We arrived at a new TP of RM1.86 per share from the previous RM1.62 based on the target average blended price-earnings ratio over price-to-book ratio (PE/PB) of 11 times/0.6 times (previously 10 times/0.5 times). We increased the target multiples to reflect our optimism about the group’s future growth prospects. Having said that, the discount attached to IOIPG’s valuation remains the steepest among its large-cap peers under our coverage. We have a target average blended calendar year 2019 PE/PB for large-cap developers of 12 times/0.9 times. With a potential return of 14.6%, we maintained our “buy” recommendation on IOIPG. — TA Securities, Nov 26

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