Investment unit to drive IOIProp earnings

PETALING JAYA: IOI Properties Group Bhd’s (IOIProp) property investment unit is expected to be the company’s key earnings driver over the medium term, say analysts.

RHB Research said the property developer’s results for the third quarter of financial year 2023 (3Q23) came in within its expectations and beat the consensus estimates.

For the quarter under review, weaker sales in China following the reopening of the country’s economy affected the group’s revenue in the property development segment.

"Top line for its property investment division continued to grow (up by 7.1% quarter-on-quarter or q-o-q) – driven mainly by IOI City Mall Phase 2.

"However, segmental earnings before interest and taxes shrank by 7% q-o-q, primarily due to higher electricity charges for the property assets as well as lower profit contributions from IOI Mall Xiamen," the research house said in a report yesterday.

RHB Research said IOIProp’s net gearing increased slightly to 0.70 times in 3Q23, from 0.69 times in the last quarter.

The group registered RM443mil of new property sales in 3Q23 compared with RM478mil in 2Q23. Local projects contributed 83% of sales while China and Singapore made up the remainder.

"In Malaysia, the developer’s major sales contributors were IOI Resort City (RM164.6mil) and Bandar Puteri Puchong (RM137.5mil), while sales in Johor (RM457.4mil) were driven mainly by Bandar Putra Kulai and Taman Kempas Utama.

"There is a slowdown in launches in China and management indicated that about RM200mil worth of local projects there will be rolled out in 4Q23," said the research house.

RHB Research said IOIProp will focus on clearing its unsold inventory of RM1.16bil (out of the total RM2.5bil held at cost in the balance sheet) over the next two to three years, leading to minimal upcoming launches in China.

"In Singapore, Marina View is on track to be launched in October 2023 despite challenges from the recent round of stamp duty hikes," the research house said.

For 3Q23, IOIProp’s unbilled sales rose slightly to RM554mil from RM489.2mil as at 2Q23.

RHB Research maintained a "buy" call for IOIProp with a target price (TP) of RM1.46 a share based on a 65% discount to revalued net asset value (RNAV).

On the other hand, MIDF Research said IOIProp is expected to record marginally stronger sales in 4Q23.

The research house said the property investment division and hospitality and leisure segments were the main propeller for the group’s marginal earnings growth in the nine months of the financial year 2023 (9M23).

"Property investment division was supported by higher rental income from shopping malls in Malaysia and Xiamen while hospitality and leisure segments turned around in 9M23 due to reopening of country borders," MIDF Research said in a report.

MIDF Research maintained a "buy" call for IOIProp with a TP of RM1.29 a share based on a 68% discount to RNAV.

"We see the outlook for IOIProp to be stable due to recovery of property investment and hospitality and leisure segments which will be driven by reopening of economy and higher tourist arrival.

"Besides, valuation is undemanding as IOIProp is trading at 72% discount to net tangible assets per share," it said.

Meanwhile, TA Research, which has maintained a "hold" call on IOIProp with a TP of RM1.19 per share, stated on account of the strong demand for its product offerings, particularly in the mid-priced residential segment, management has an optimistic outlook on achieving its FY23 sales target.

"The group has successfully launched new products worth RM937mil in 9M23, with a healthy take-up rate of 63%.

"Sales in Malaysia have shown an improvement, helping to offset the sluggish property market in China. In fact, 9M22 sales in Malaysia have increased by 20% compared to the same period in FY22."

Source: The Star