IOI Properties stumbles after 1Q net profit declines, but analysts upbeat on outlook

• Analysts were unperturbed by its poorer y-o-y performance, as the results mostly met their expectations, while its core net profit had swelled q-o-q thanks to higher share of results from joint ventures and improved contributions from its property investment segment.

KUALA LUMPUR (Nov 27): IOI Properties Group Bhd's share price fell 6.36% or 11 sen to an intra-morning low of RM1.62, despite analysts expressing their optimism on its earnings outlook.

The counter then pared some losses to close at RM1.65, down eight sen or 4.62%, as 18.38 million shares changed hands.

Last Friday, the property developer announced that its net profit fell by 72.8% to RM174.45 million during the quarter under review, due to 6.3% lower revenue of RM648.05 million, coupled with the inclusion of a fair value gain on investment property amounting to RM470.41 million in 1QFY2023.

However, analysts were unperturbed by its poorer year-on-year (y-o-y) performance, as the results mostly met their expectations, while its core net profit had swelled quarter-on-quarter (q-o-q) thanks to higher share of results from joint ventures and improved contributions from its property investment segment.

TA Securities raised its target price (TP) for IOI Properties to RM2.09 from RM1.88 previously, after increasing its TP-to-book multiple to 0.5 times from 0.45 times.

"We like IOI Properties’ significant value within its investment properties portfolio, especially upon the completion of IOI Central Boulevard," it said.

According to the research house, IOI Properties said in a briefing that it plans to launch luxury condominium development Marina View in Singapore, which has a potential gross development value (GDV) of S$2.6 billion (RM9.09 billion), in the third quarter ending March 31, 2024 (3QFY2024).

"Management notes a subdued outlook for the China property market due to a weaker-than-expected economic recovery. With most of the group's residential units already completed, management sees an advantage in building confidence among buyers looking for properties for immediate use. The group will focus on driving the sales of completed inventories in China.

"Meanwhile, IOI Properties is expecting better performance in the retail and hospitality sectors for FY2024, driven by the second phase of IOI City Mall as well as higher occupancies and average daily room rates, while its IOI Central Boulevard Towers in Singapore is scheduled for completion by the end of 2023.

"It was reported that about 40% of IOI Central Boulevard Towers' net lettable area of 1.26 million sq ft had been committed, with another 20% in the advanced stages of negotiation. As the supply of new office space remains limited, particularly in the Central Business District, demand for high-quality offices remains strong.

"This is evidenced by an upward rental trend, with 2Q2023 prime grade office rents in the Raffles Place/Marina Bay area increasing by 1.2% q-o-q and 5.8% y-o-y to S$10.96 psf/month, according to Knight Frank.

"The inclusion of Central Boulevard in IOI Properties' investment properties portfolio is poised to potentially double its investment property revenue. With a conservative monthly rental rate of S$9-10 psf, Central Boulevard is estimated to generate a sizeable annual rental income of RM470-520 million, in comparison to IOI Properties' FY2023 property investment revenue of RM491 million.

"Management anticipates a more substantial contribution from Central Boulevard starting from FY2025 onward, considering that anchor tenants usually demand a fit-up period of approximately six to nine months," it said.  

AmInvestment Bank also raised its fair value (FV) on IOI Properties to RM2.05 from RM1.91 after rolling forward its revised net asset valuation (RNAV) and neutral environmental, social and governance (ESG) rating of three stars, while maintaining its "buy" rating.

"Our FV implies FY2025 price-earnings (PE) of 13 times, close to the average of the larger cap property stocks currently," it said in a research note on Monday.

"The stock currently trades at a bargain FY2025 PE of 11 times versus its three-year median of 13 times. We continue to like IOI Properties for its: 1) regional property development portfolio with a strong track record and successful real estate projects in Malaysia, Singapore (Sentosa Cove) and China (Xiamen); and 2) substantial contributions from recurring income of IOI Central Boulevard upon its completion in FY2024, along with launches of major projects in Singapore, namely Marina View Residences with a huge GDV of S$2.6 billion (RM8.6 billion)."

Hong Leong Investment Bank (HLIB) likewise upped its TP for IOI Properties to RM2.50 from RM2.48 previously, based on a 50% discount to RNAV of RM5, while maintaining its "buy" recommendation.

HLIB also raised its forecast for IOI Properties' core net profit by 0.4% to RM720.2 million for FY2024 and by 1.9% to RM836.1 million for FY2025, while introducing its FY2026 forecast of RM983.7 million.

"We remain positive on the group’s prospects especially in the Singapore real estate market coming from its upcoming new office building IOI Central Boulevard and launch of Marina View Residences. Both of these developments should significantly lift the earnings for the group from FY2025 onwards," it said in a Monday note.

However, RHB Research said IOI Properties' 1QFY2024 results did not meet its expectations. "We expect earnings in the coming quarters to be stronger as year-end festivities should boost income for investment properties, and 2HFY2024 should see gradual rental contribution from IOI Central Boulevard in Singapore upon its commencement of operations," it said.

"Management is keeping its RM2 billion sales target, and bookings of RM335 million should provide some visibility on sales momentum going forward.  

"Sequential revenue for property development declined due to lower property sales from Malaysia and China. However, the property investment division saw significant growth y-o-y and q-o-q, mainly driven by the high occupancy of IOI City Mall Phase 1 & 2, as well as other retail assets," it noted.

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