IOI Properties Group Bhd
(Nov 24, RM2.48)
Maintain reduce with target price (TP) of RM2.34: Although IOI Properties Group Bhd’s core earnings for the first quarter of financial year 2015 ending June (1QFY15) of RM101 million (+18% year-on-year [y-o-y] only accounted for 16% of our full-year forecast and 18% of street estimates, we deem it to be within our expectation as we expect earnings to come in stronger in subsequent quarters on higher income contribution from its investment property segment and associates. As expected, no dividend was declared during the quarter.

Revenue in 1Q grew by a commendable 34% y-o-y on higher contribution from: (i) its property development segment (+28%) on progress billings; (ii) property investment (+19% y-o-y) on additional rental income post internal restructuring and (iii) more than double revenue contribution from its leisure and hospitality operations from additional income generated from Putrajaya Marriott Hotel and Palm Garden Hotel (acquired from the internal restructuring exercise).

However, 1Q core earnings fell by 9.1% y-o-y to RM101 million, on higher interest expenses as well as lower contribution from its associates (Singapore operations). IOI Properties’s total borrowings stood at RM3.2 billion as at end-September this year (+36% y-o-y).

We maintain our earnings forecast as we expect earnings to improve on the back of higher income from its investment property segment, with the opening of IOI City Mall.

We make no change to our reduce rating and TP of RM2.34 (ex-all, based on 40% discount to revalued net asset value). Our cautious view is on the back of the group’s high exposure to China and Singapore’s property market as well as long gestation period for investment properties.

Key upside risks to our negative view include: (i) stronger-than-expected recovery in Malaysia, Singapore and China property market sentiment; and (ii) stronger-than-expected earnings contribution from its investment properties. — AffinHwang Capital, Nov 24

This article first appeared in The Edge Financial Daily, on November 25, 2014.