IOI Properties’ 3QFY15 garners mixed views

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KUCHING: IOI Properties Group Bhd’s (IOI Properties) third quarter of the financial year 2015 (3QFY15) results has garnered mixed views from analysts.

In a posting on Bursa Malaysia, IOI Properties noted that the group recorded revenue and operating profit of RM468.4 million and RM146.9 million respectively for the current year quarter under review, which is RM102.6 million or 28 per cent and RM42 million or 40 per cent respectively higher than the preceding year corresponding quarter.

The company further noted that the increase in both revenue and operating profit is contributed from all operating segments.

According to RHB Research Institute Sdn Bhd (RHB Research), IOI Properties Group’s 3QFY15 (June) earnings came in below its and market expectations, with core net profit making up 66 and 63 per cent of its and consensus estimates respectively.

The research house noted that although revenue for the property investment division grew 37 per cent quarter-on-quarter (q-o-q), IOI Properties’ operating margin contracted to 36 per cent from 57 per cent in the previous quarter.

It said that this could be due to the expenses incurred by the newly-completed Tower 4 and 5 in Puchong Financial Corporation Centre (PFCC), which have not been fully tenanted, as well as upfront expenses for IOI City Mall Putrajaya.

“Similarly, the margin for property development division also shrank to 28 per cent from 38 per cent in the last quarter,” the research house said.

RHB Research noted that IOI Properties chalked up RM390 million new sales in 3QFY15, up from RM272 million in 2QFY15, bringing the first nine months of FY15 (9MFY15) total to RM1.03 billion.

It further noted that about 90 per cent of the sales were contributed by projects from Malaysia, nine per cent mainly from The Trilinq in Singapore, and the remaining one per cent from China.

During the quarter, the research house said that apart from Bandar Puteri Bangi, IOI Properties also launched some landed properties in Bahau which has a gross development value (GDV) of RM30 million and Segamat and Taman Lagenda Putra (combined GDV: RM70 million).

There could be some five to 10 per cent downside to RHB Research’s sales forecast of RM2 billion, as the take-up in the China Xiamen IOI Palm City project (GDV:RM1.24 billion) may take time to be converted into contract sales, given that it will only be launched in end-May.

For the research arm of TA Securities Holdings Bhd (TA Research), excluding the fair value gain from revaluation of investment property of RM178.3 million, IOI Properties’s 9MFY15 normalised net profit of RM310.8 million came in within its expectations but below consensus forecasts, accounting for 74 per cent and 64 per cent of its and consensus full-year forecasts respectively.

TA Research noted that IOI Properties recorded new property sales of RM352 million in 3QFY15, bringing year to date (YTD) new sales to RM990 million.

Although the YTD sales accounted for only 66 per cent of the research arm’s full year sales forecast of RM1.5 billion, it deemed the sales performance within expectations in anticipation of higher booking conversion from ongoing projects as well as the recently launched Bandar Puteri Bangi, which have been well-received.

“Unbilled sales as at March-2015 stood at RM1.5 billion, providing the group with about one-year earnings visibility,” it added.

As such, TA Research made no change to its FY15-17 earnings projections.  The research arm maintained its ‘buy’ recommendation on IOI Properties.

In contrast, in view of weaker-than-expected margins, RHB Research lowered its FY15 to FY17 earnings forecasts by six to eight per cent. It also noted that unbilled sales remained steady at RM1.5 billion, compared with RM1.45 billion in 2QFY15.

All in, the research house maintained its ‘neutral’ rating on the stock.

It added that near-term catalysts for the sector are lacking and property sales in April were weak after the goods and services tax (GST) kicked in.