Analysts Downgrade IOI Properties’ FY26 Earnings Forecast
MBSB Investment Bank Bhd (MBSB Research) has maintained its NEUTRAL call on IOI Properties Group Bhd (IOI Properties) with a revised target price of RM2.09 from RM2.15, after the group ended its financial year on a weaker note. The research house said FY25 core net income of RM296.9 million came in below expectations, accounting for only 76% of its estimates and 74% of consensus, mainly due to higher-than-expected tax expenses in the fourth quarter.
Despite the earnings miss, IOI Properties declared a dividend of 8 sen per share for FY25, higher than 5 sen in FY24, translating into a yield of 3.8%.
In the fourth quarter, core net income slumped sharply to RM15.5 million, down 86% quarter-on-quarter, even as revenue rose 17.9%. According to MBSB Research, earnings were dragged by higher marketing expenses, which surged 163%, a drop in gross profit margin to 32% from 48% in the previous quarter, and substantially higher tax expenses.
Tax costs jumped to RM198.6 million in 4QFY25 compared with RM68.7 million in 3QFY25, following an increase in property tax assessment by the Inland Revenue Authority of Singapore.
Operating profit from the property development segment improved by 16.3% quarter-on-quarter, supported by higher sales in both Malaysia and China. However, full-year results showed a 45.1% decline in core net income to RM296.9 million, weighed by higher tax, marketing and interest expenses.
Interest costs rose significantly to RM418 million in FY25 from RM18.9 million in FY24, as the IOI Central Boulevard Towers in Singapore was completed in July 2024, leading to interest expense being recognised in the profit and loss account.
MBSB Research also noted that earnings were lower due to the absence of land sales, which had lifted FY24 performance. Nonetheless, losses from the hospitality and leisure segment narrowed, while contributions from property development improved.
New property sales reached RM1.81 billion in FY25, slightly lower than RM2.1 billion in FY24, which was boosted by RM365 million from land sales. For 4QFY25, new sales rose to RM670 million from RM447 million in 3QFY25, with projects in Malaysia contributing 90% of total sales.
Unbilled sales rose to RM851 million at the end of the fourth quarter from RM718 million previously, providing earnings visibility ahead.
Looking forward, MBSB Research expects new sales to remain within the RM2 billion range, with Malaysian projects continuing to anchor performance, as the W Residence Marina View project in Singapore has yet to be officially launched.
The research house has revised its earnings forecast for FY26 and FY27 downwards by 38% and 32% respectively, while introducing estimates for FY28. It widened its revalued net asset value discount to 59% from 58% given weaker earnings visibility, and maintained its NEUTRAL stance, citing limited near-term catalysts for IOI Properties while net gearing remains elevated at 0.7 times.
The stock price as of 11.38 am is up by 7.14% at RM2.250.