Strong balance sheet to spur IOIProp

KUALA LUMPUR: IOI Properties Group Bhd's (IOIProp) elevated net debt position should not be a cause for concern, given the track record in its balance sheet management.

Investors may have had concerns on this front but Hong Leong Investment Bank Research (HLIB Research) pointed out its net gearing ratio appears to have peaked at the end of the third quarter of the financial year 2022 (3Q22) at 75.5%.

This figure had since moderated to 68% in the latest end-second quarter of this financial year.

It is also probable that the rise in debt level is only temporary and it was necessary for it to participate in the Marina View development in Singapore.

"We believe the development is an attractive growth opportunity for the group, given the limited land supply and limited private residential development in Singapore, as well as the strategic location of Marina View in the central business district of the Marina Bay area," HLIB Research said.

It is also likely that the Singapore's Urban Redevelopment Authority had also taken into account IOIProp's balance sheet strength and financial capability prior to awarding the project to the group, it said.

"We are of the view that IOIProp can stomach the higher debt, given its consistent earnings delivery and healthy operating cash flow.

"The current elevated debt level was a result of the acquisition of Marina View land in September 2021, which was transacted at a price of S$1.5bil (RM5bil)," the research house added.

It is also positive on this launch since Singapore remains one of the bright spots in the real estate market in the region.

"Despite several rounds of cooling measures, the property buying interest there remains strong, supported by the country's robust economy that attracted high-net worth entrants to the country," the research house said.

Meanwhile, its IOI City Mall, which is now the largest mall in Malaysia and the second-largest mall in the world, has received good reception from the public.

It noted that the current occupancy rate for Phase 1 and recently launched Phase 2 are more than 90% and 60%, respectively.

"IOIProp targets to achieve a 90% occupancy rate for Phase 2 by end-2023. Rental per sq ft per month for Phase 1 and Phase 2 are RM11.40 and RM6.50, respectively.

"Management targets to bring the rental rate for Phase 2 closer to Phase 1's rate at the next rental revision period three years later," HLIB Research said.

Its management had also noted that the mall is attracting crowds from neighbouring towns and cities such as Seremban and Nilai. Accordingly, it noted there is a further expansion of the mall to Phase 3 that is being planned.

Given the strong response to the recent Phase 2 expansion, this will likely give more confidence to the group for the next phase under the masterplan.

"This could potentially add another 700,000 sq ft to the mall.

"Nonetheless, the group appears to not be in a hurry to do this, as it would like to allow the current Phase 2 operations to stabilise first before planning on the next expansion," it said.