• Maintain BUY and MYR1.18 TP, 17% upside with 5% FY23F (Jun) yield. IOI Properties’ 1QFY23 results beat expectations, due to the opening of IOI City Mall Phase 2 as well as the strong recovery of its hospitality division. We remain upbeat on the company’s earnings growth prospects in FY23- 24, given the stronger contributions from its property investment division as IOI Central Boulevard Towers commences operations late next year.

• 1QFY23 results. The property investment and hospitality units booked stronger earnings growth QoQ. While the property investment division was driven by the opening of IOI City Mall Phase 2 on 25 Aug, the hospitality unit enjoyed better hotel occupancy rates due to the re-opening of international borders and resilient domestic tourism. Earnings during the quarter were skewed by a MYR470.4m revaluation gain (IOI City Mall Phase 1: MYR115m and Phase 2: MYR355m) as well as a MYR34.9m impairment loss on property (additional carpark lots in IOI City Mall Phase 2). Net gearing fell slightly to 0.67x, from 0.71x in the previous quarter.

• Decent sales in 1QFY23. New property sales amounted to MYR448.6m vs MYR616m in 4QFY22. IOIPG’s projects in Malaysia contributed 79%, while China and Singapore accounted for 15% and 6% of sales. Property sales in China remained slow, due to the country’s prolonged zero-COVID policy. Management is still looking to hit its MYR1.9bn sales target (flat from FY22), on the back of MYR1.5bn worth of new launches in FY23.

• Successful opening of IOI City Mall Phase 2. IOI City Mall Phase 2 (NLA 1m sqf) opened its doors on 25 Aug. While the committed occupancy rate is already >80%, we understand that not all tenants have commenced operations there. Phase 2 will have four anchor tenants, and new tenants such as IOI City Farm (an edutainment park) and IOI Sports Centre, D21 Adventure Park and Icescape (an Olympic sized ice-skating rink) will progressively open. Meanwhile, IOI Central Boulevard Towers in Singapore is scheduled to be completed in late 2023. We remain optimistic on the leasing prospects, given the strong demand from tech companies in Singapore. It was reported that IOIPG has secured Amazon.com as an international anchor tenant, taking up about 30% of the total office NLA.

• Forecast. We raise FY23-25F earnings by 10-15% to reflect the stronger performance from the property investment and hospitality divisions. Unbilled sales fell to MYR500.7m, from MYR605m as at 4QFY22.

• Maintain TP. Our TP is based on a 70% discount to RNAV, and includes a 6% discount, in view of IOIPG’s ESG score of 2.70 – which is slightly below our country median.

Source: RHB Research - 24 Nov 2022