IOI Properties Group Bhd 
(Aug 28, RM1.83)
Maintain buy with a higher target price (TP) of RM2.50: IOI Properties Group Bhd’s (IOI Properties) financial year ended June 30, 2015 (FY15) core earnings came in within our expectation but above street estimate. Revenue growth was driven by property and property investment segments. We lightly tweak FY16 to FY17 forecasts. 

For FY15, IOI Properties reported impressive core earnings of RM574 million (+48.5% year-on-year, y-o-y) on the back of 31% growth in sales. This is within our expectation (4% above our forecast). Our core net profit excludes a fair value gain of RM316.6 million from investment properties mainly derived from IOI City Mall. IOI Properties declared a final dividend of six sen.

Fourth quarter ended June 30, 2015 (4QFY15) core net profit more than doubled y-o-y on the back of 47% growth in revenue. The strong revenue growth was driven by i) its property development segment’s   (+27%) increased sales of the Trilinq project in Singapore, as well as the recently-launched IOI Palm City in Xiamen which received good response; ii) property investment (+87% y-o-y) on higher contribution from its retail business with additional 1.44 million net lettable area from IOI City Mall; and iii) leisure and hospitality operations (+89% y-o-y) due to the maiden contribution from Four Point Sheraton Puchong, District 21 and Icescape Ice Rink at IOI City Mall. 

IOI Properties targets to launch its second phase of residential properties in IOI Palm City, Xiamen, in 2QFY16. In addition, two office towers and Le Meridien are expected to be completed by the third quarter of calendar year 2016, which should boost its investment properties segment. 

We have tweaked our FY16 to FY17 earnings per share forecasts after updating FY15 earnings. We also introduce FY18 forecast. We maintain our “buy” recommendation. Our revised net asset value-based (40% discount) TP is raised from RM2.31 previously. Risk to our call is lower-than-expected contribution from the investment property segment and softer-than-expected outlook for the property sales. — Affin Hwang Capital, Aug 28

This article first appeared in digitaledge Daily, on September 1, 2015.