IOI Properties Group - Xiamen 2 scheduled for launching in May 2020

Source: I3investor

Investment Highlights

  • We maintain our BUY recommendation on IOI Properties Group (IOIPG) with an unchanged fair value of RM1.52 based on SOP valuation (Exhibit 1). We make no changes to our FY20–22 net earnings forecasts.
  • During a recent engagement with the company, management updated us on its latest development, particularly the operations in Xiamen, China. Key highlights of its China operation: (i) The overall situation has improved beginning early March as factories in China gradually restarted production and workers returned to their working place. (ii) As of mid-March, economic activities have resumed, with capacity picking up. At the same time, IOIPG has recommenced its operation in Xiamen, China. (iii) IOIPG is planning to launch its Xiamen 2 project progressively in May 2020. The anticipated GDV for Xiamen 2 is approximately RMB800mil comprising high-rise residential (GDV – RMB600mil) and landed residential (GDV – RMB200mil). (iv) Meanwhile, Xiamen 3 is scheduled for launching in the later part of CY2020.
  • Meanwhile in Malaysia, management stressed that postmovement control order (MCO), work shifts of construction jobs will need to be increased to clear backlogged work due to the MCO. The company is still assessing the local property market, and may consider reducing its sales target.
  • We make no changes to our FY20–FY22 earnings forecasts at this juncture. To recap, we have cut our FY20–FY21 earnings forecasts by 6.1% and 5.9% respectively in our previous sector report dated 9 April 2020 to reflect the impact of the MCO and its spillover effects to the economy which may result in lower revenue recognition.
  • We reckon that the long-term outlook for IOIPG remains stable anchored by a positive contribution from its property development projects and steady income from its property investments. We view the recent selldown on the stock as a buying opportunity with a potential upside of about 50%, hence we are maintaining our BUY recommendation.