Lower property development earnings seen for IOI Properties

IOI Properties Group Bhd (May 21, RM1.61)

Maintain neutral with a lower target price (TP) of RM1.69: IOI Properties Group Bhd (IOIPG) 9MFY18 core net income of RM483.4 million came in below expectations, making up 62% and 56% of our and consensus full-year estimates respectively. The negative deviation could be attributed to the weaker-than-expected contribution from property development division.

IOIPG recorded core net income of RM483.4 million in nine months of financial year 2018 (9MFY18) (-32.6% year-on-year [y-o-y]). Note that we have excluded share of impairment loss in joint venture and forex gain in our core net income calculations.

The weaker earnings in 9MFY18 were mainly owing to lower contribution from property development division. 9MFY18 operating profit of property development division eased 14.5% y-o-y due to lower contribution from local projects and overseas projects (Singapore and China).

Meanwhile, operating profit of property investment division is higher by 20% y-o-y due to high occupancy rates of its retail and office properties.

Meanwhile, third quarter (3QFY18) unbilled sales declined to RM990 million from RM1.2 billion in 2QFY18, providing less than one year of earnings visibility to property development division.

IOIPG recorded new property sales of RM340 million in 3QFY18, lower than new sales of RM448m in 2QFY18.

That brought total new sales in 9MFY18 to RM1.47 billion. Sixty-one per cent of the new sales in 9MFY18 came from local projects, 32% contributed by Singapore project while the remaining 7% contributed by project in China.

Meanwhile, IOIPG plans to launch its residential projects in Xiamen, China in 4QFY18. 

We trim our earnings forecast for FY18 and FY19 by 10% and 7.8% to factor in lower contribution from property development division. Our TP for IOIPG is revised to RM1.69 from RM1.89 as we widen our discount to realised net asset value (RNAV) to 58% from 53% following the weaker-than-expected earnings. We maintain our “neutral” call on IOIPG for its unexciting earnings outlook. — MIDF Research, May 21

This article first appeared in The Edge Financial Daily, on May 22, 2018.

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