KUALA LUMPUR (April 22): RHB Research Institute Sdn Bhd has upgraded IOI Properties Bhd to "buy" from "neutral", with an unchanged target price of RM1.76, which offers 36% upside plus 5% yields.

In a note today, the research house said the value has emerged given that IOI Properties' share price has fallen about 15-20% in the past three months.

"Our recent meeting with management suggests that there is no material change or deterioration in business that could explain the drop in share price," said the research house.

RHB Research said IOI Properties' near-term earnings should be underpinned by strong sales in Xiamen, China, and the growing income stream from its property investment assets.

Following the successful property launch in Xiamen 2 in December 2018 — which sold over 80% — the management of the company is planning to roll out Xiamen 3 project in Xiang An in mid-2019 on cautious stand as the project is more premium and located further away from Xiamen 1 and 2.

The company has launched over RM400 million worth of property projects in China, which have been well-received, RHB Research noted.

In addition, the research house said IOI Properties' project in Singapore, the South Beach Residences, which has a gross development value (GDV) of S$1 billion could be an earnings kicker for the company in the FY19 and FY20 forecasts respectively.

It said that to-date, the project has achieved a take-up rate of more than 30% since its launch a few months ago and given the premium pricing.

It said the residential tower has already been completed. Hence, recognition of sales and earnings is almost immediate for every unit sold.

On investment assets, this will also drive IOI Properties near-term earnings growth. The group' recurring income from its investment property assets currently makes up more than 20% of its total revenue, compared to around 10% two years ago.

RHB Research said the company is poised to benefit from the East Coast Rail Link (ECRL) and, potentially, the High-Speed Rail (HSR) project if revived.

"With about 700 acres of development land around IOI Resort City, we think IOI Properties is a prime beneficiary of the railway network that will have a stop at Putrajaya Sentral. These are the ECRL, ERL, and MRT2 (Sungai Buloh-Serdang-Putrajaya line) that have already been allocated a stop at Putrajaya Sentral, which is 11-12 km away from the site. Assuming the HSR project is resumed, we think that the link could potentially also have a stop at Putrajaya Sentral," it said.

"Meanwhile, if Ayer Keroh remains as one of the HSR stations, IOI Properties' more than 1,000 acres of land in Ayer Keroh would also benefit, as the site is diagonally opposite the HSR station under the original plan," it added.

At 10.45am, IOI Properties rose 3.1% or 4 sen to RM1.33 with 1.01 million shares traded.

— theedgemarkets.com

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