IOI Properties Facing Headwinds From China Slowdown

IOI Properties Group Berhad (IOIPG) has reported disappointing financial results for FY24, with core net profit declining by 12% year-on-year, largely due to a slowdown in the Chinese property market. Analysts remain cautious, with all calls indicating an UNDERPERFORM status. This reflects the company’s ongoing struggle to navigate a challenging economic environment and high gearing levels.

For FY24, IOIPG’s core net profit reached RM511.6 million, accounting for only 66% and 72% of the company’s full-year forecast and consensus estimates, respectively. The discrepancy primarily stems from weaker-than-expected demand in its property development segment, particularly for completed projects in China. Despite a 13% year-on-year increase in revenue, driven by robust performance across various segments and land sales in Johor amounting to RM211 million, the core net profit saw a decline of 19%. Furthermore, the fourth quarter of FY24 marked a significant quarter-on-quarter revenue drop of 13%, leading to a core net loss of RM4.5 million, exacerbated by one-off impairments and revaluations amounting to RM1.5 billion.

Analysts from MIDF, Kenanga project a challenging year ahead, cutting FY25 earnings forecasts by 24% due to expected sluggish operating margins within the property development sector. The target price has been adjusted downward to RM1.71, reflecting a higher discount to net asset value (NAV) as IOIPG faces further near-term challenges.

Looking ahead, IOIPG aims to enhance its offerings with the upcoming launch of Marina View Residence in Singapore, anticipated to attract significant attention in the market. The sales gallery is expected to be completed by October 2024, with hopes of driving long-term earnings. In addition, the company is set to obtain the final phase of its Temporary Occupation Permit for IOI Central Boulevard in September 2024, which will facilitate renovations for new tenants. The project has already secured leases with various international firms, indicating a promising future for occupancy rates.

In the hospitality sector, IOIPG plans to leverage its new Moxy Hotel and W Kuala Lumpur, which are expected to enhance its market presence in key tourist destinations. Notably, the occupancy rate at IOI City Mall remains impressive at an average of 96%, underscoring the group’s effective management of its retail properties.

Despite these initiatives, the company has opted not to proceed with the acquisition of Shenton 101, a decision that is expected to maintain its financial stability amid high net gearing levels of 0.7x. This decision allows IOIPG to focus on its existing developments and manage its resources more effectively.