• Maintain BUY with MYR1.40 TP, 25% upside and c.5% yield. IOI Properties’ 2QFY23 (Jun) results beat expectations, due to the opening of IOI City Mall Phase 2 and the reversal of inventories previously written down. IOIPG remains our Top Pick for the sector as we are confident that its property investment division will continue to drive earnings in the coming quarters. The completion of IOI Central Boulevard in Singapore towards the end of 2023 should be another kicker to earnings from FY24F onwards.

• 2QFY23 results. As expected, IOIPG’s property investment and hospitality divisions continued to grow QoQ. The better earnings from the property investment segment were mainly due to more tenants commencing their operations in the new IOI City Mall Phase 2, which was opened since 25 Aug 2022. Its hospitality division enjoyed better hotel occupancy rate as a result of resilient domestic tourism. Earnings during the quarter were lifted by a MYR192.7m reversal of inventories from Cape Royale Singapore that was previously written down (we now treat this as core item as we previously treated the impairment as core loss when it was incurred). Net gearing inched up slightly to 0.69x from 0.67x in last quarter.

• Sales momentum continued in 2QFY23. New property sales achieved MYR478m (vs MYR448.6m in 1QFY23), bringing 1HFY23 total to MYR926.6m. Projects in Malaysia contributed 86%, while China and Singapore made up the remaining 14%. On the Malaysian front, sales from the Klang Valley region (MYR473.4m) were largely contributed by IOI Resort City and Bandar Puteri Puchong, while sales in Johor (MYR305.5m) were driven by Bandar Putra Kulai and Taman Kempas Utama. Management maintains its MYR1.9bn sales target and the company’s projects in Xiamen are likely to pick up again in 2HFY23, given the reopening of China since end 2022.

• Property investment division to grow stronger in 2HFY23. We expect the new IOI City Mall Phase 2 as well as other retail malls in the portfolio to perform even better in 2HFY23, driven mainly by the Lunar New Year and upcoming Aidil Fitri festivities. Meanwhile, IOI Central Boulevard Towers in Singapore is on track to be completed by the end of 2023 and its leasing prospects remain encouraging given the strong demand from tech companies in the region. IOIPG’s Marina Bay site is now undergoing development planning for the mixed residential and hotel components.

• We raise FY23F earnings by c.15% to reflect the reversal of impairment. Unbilled sales fell slightly to MYR489.2m vs MYR500.7m as at 1QFY23.

• Maintain TP. Our TP is based on a 70% discount to RNAV and includes a 6% discount given IOIPG’s ESG score of 2.70.

Source: RHB Research - 27 Feb 2023