RESULTS UPDATE Monday, February 26, 2018 FBMKLCI: 1, 861.50 Sector: Property

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

IIOOII PPrrooppeerrttiieess GGrroouupp BBeerrhhaadd TP: RM2.00 (+0.8%) Last Traded: RM1.98 2QFY18 Property Sales Declined QoQ and YoY Sell

Thiam Chiann Wen Tel: +603-2167 9615 [email protected] www.taonline.com.my

Review Share Information  Excluding the share of impairment loss in joint venture which amounted Bloomberg Code IOIPG MK to RM79.7mn, IOIPG reported normalised net profit of RM431.7mn in Stock Code 5249 Listing Main Market 1HFY18. Results were within expectations, accounting for 47% of both Share Cap (mn) 5506.1 ours and consensus full-year estimates. Market Cap (RMmn) 10,902.2 52-wk Hi/Lo (RM) 2.22/1.79 12-mth Avg Daily Vol ('000 shrs) 3,101.6  Despite 1HFY18 revenue plunging 24.7% YoY to RM1.6bn, normalised Estimated Free Float (%) 22.0 net profit declined only by 1% YoY to RM431.7mn, driven by higher Beta 0.8 operating margin which grew 11.1%-pts YoY to 41.5%. The weaker top- Major Shareholders (%) line was largely due to lower contribution from overseas projects. Vertical Capacity Sdn Bhd - 52.1 Summervest Sdn Bhd - 8.5 Employees Provident Fund - 6.3  Segmental wise, property development division’s 1HFY18 revenue and operating profit plunged 29.6% and 14.8% YoY to RM1.3bn and Forecast Revision RM454.1mn respectively. Softer results were largely due to lower FY18 FY19 Forecast Revision (%) contribution from the property development in overseas. However, (1.2) (3.9) Net profit (RMmn) 903.2 864.8 margin improved 6.0%-pts YoY, contributed by higher profit recognition Consensus 926.4 944.5 from the development projects in both Valley and Johor. Local TA's / Consensus (%) 97.5 91.6 development projects garner higher margins largely due to cheaper land Previous Rating Hold (Downgraded) and construction costs. Financial Indicators FY18 FY19  Meanwhile, the performance of both property investment and hospitality Net gearing (x) 42.2 34.6 division improved in 1HFY18, with revenue and operating profit CFPS (sen) 43.3 28.8 collectively surged 14% and 15% YoY to RM259.8mn and RM115.8mn P/CFPS (x) 0.0 0.1 ROE (%) 4.8 4.5 respectively. Stronger result was largely driven by higher occupancy and NTA/Share (RM) 3.5 3.6 rental rates for retail segment, specifically for IOI City Mall which has Price/ NTA (x) 0.6 0.6 entered its second renewal cycle. Meanwhile, Le Meridien by Starwood, Scorecard , which commenced its business operation in Aug 2016, also % of FY contributed to better performance. vs. TA 47.0 Within vs. Consensus 47.0 Within  Excluding the share of impairment loss of RM79.7mn for the quarter, IOIPG reported normalised net profit of RM188.8mn in 2QFY18, which Share Performance (%) Price Change IOIPG FBM KLCI was 22.2% lower on a QoQ basis. The decrease was mainly due to lower 1 mth (3.9) 0.4 contribution from Trilinq project in Singapore. 3 mth 1.5 8.4 6 mth (7.5) 5.2  IOIPG’s 2QFY18 new property sales plunged 34% QoQ and 44% YoY to (12-Mth) Share Price relative to the FBMKLCI RM448mn, due to absence of new launches. This brought the 1HFY18 sales to RM1.13bn (-26% YoY). Of the RM1.13bn new sales, 59% were derived from , 9% from China and 32% from Singapore (as compared to Malaysia: China: Singapore, 42%: 13%: 45% in 1HFY17). Unbilled sales stood at RM1.25bn as at Dec-17. Note that current unbilled sales can only sustain the group’s earnings for less than 6 months (only 0.3x of the group’s last FY property development revenue).

Impact

 Our FY18/19/20 earnings forecasts are revised lower by 1.2%/3.9%/5.6% Source: Bloomberg respectively, after cutting our FY18/19/20 new sales assumptions lower to

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RM2.5bn/RM2.7bn/RM2.9bn from RM2.9bn/RM3.0bn/RM3.1bn previously. However, this is partly mitigated by higher property investment income, as we now assume higher occupancy and rental rates for the new property investment assets.

Outlook  Key projects to be rolled out in 2HFY18 include, Bandar Jaya, Bandar Puteri Puchong, 16 Sierra, Bandar Puteri Bangi, Kota Warisan and IOI Resort City as well as Bandar Putri Kulai in Johor. Upcoming launches for FY18 includes Bandar Puteri Puchong (Cruise Residence, service apartment, GDV: RM293mn), IOI Resort City (Par 3, Condominium, GDV: RM240mn), Bandar Puteri Bangi (Strata Townhouse, GDV: RM294mn) and Warisan Puteri (Ayden Townhouse, GDV: MR160mn).  FY18 sales target appears to be unachievable, in view that: 1) 1HFY18 sales only accounted for ~39% of both our full year sales assumptions and management’s sales target of RM2.9bn, 2) lack of new launches so far, and 3) the group’s key sales driver - Trilinq Singapore, is already 92% sold.  Upside to sales will likely come from the successful launch of new phases within IOI Palm City, Xiamen, PRC. The group plans to roll out condominiums with potential GDV of RMB1.2bn in 4QFY18.

Valuation  Following the change in earnings forecasts, we lower our target price to RM2.00/share (from RM2.02/share), based on blended CY18 PE/PB ratio of 12x/0.6x (unchanged). In view of its low unbilled sales level, we believe timely launch is the key to sustain the group’s earnings. Downgrade to Sell (potential total return of 3.8%).

Table 1: Earnings Summary (RMmn) YE June FY16 FY17 FY18f FY19f FY20f Revenue 3024.9 4185.4 4209.1 3777.6 3629.6 EBITDA 1029.9 2131.3 1867.1 1782.4 1822.9 EBITDA margin (%) 34.0 50.9 44.4 47.2 50.2 Normalised Pretax profit * 1056.6 1559.9 1323.7 1267.1 1250.1 Reported Net Profit 1080.0 920.9 903.2 864.8 853.2 Normalised Net Profit * 611.9 1044.2 903.2 864.8 853.2 EPS * (sen) 13.8 18.9 16.3 15.7 15.4 EPS Growth * (%) (9.0) 36.6 (13.5) (4.3) (1.3) PER (x) 14.3 10.5 12.1 12.7 12.8 GDPS (sen) 8.0 6.0 6.0 6.0 6.0 Div Yield (%) 4.0 3.0 3.0 3.0 3.0 ROE (%) 4.1 6.1 4.8 4.5 4.3 * excludes fair value gains and disposal gains

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Table 2: 2QFY18 Results Analysis (RM mn) 2Q17 1Q18 2Q18 QoQ (%) YoY (%) 1HFY17 1HFY18 YoY (%) Revenue 1,194.7 870.0 707.4 (18.7) (40.8) 2,094.3 1,577.4 (24.7) Property Development 1,068.3 742.2 569.4 (23.3) (46.7) 1,861.8 1,311.5 (29.6) Property Investment 77.5 77.1 82.0 6.5 5.9 148.8 159.1 6.9 Leisure & Hospitality 47.5 48.3 52.4 8.6 10.4 80.0 100.7 25.9 Other operations 1.5 2.5 3.6 46.4 139.8 3.6 6.1 68.9 Operating Profit 393.6 329.0 246.1 (25.2) (37.5) 664.0 575.0 (13.4) Operating Profit Ex Fair Value Gain 365.9 329.0 325.8 (1.0) (11.0) 636.2 654.7 2.9 Property Development 309.8 270.2 184.0 (31.9) (40.6) 533.3 454.1 (14.8) Property Investment 43.9 49.4 48.5 (1.8) 10.5 86.4 97.8 13.3 Leisure & Hospitality 11.1 7.5 10.5 40.3 (5.1) 13.9 18.0 29.1 Other operations 1.1 1.9 3.1 60.9 178.1 2.6 5.1 92.5 Share of results of associates & JVs (5.0) 12.3 (69.2) >100 >100 (0.9) (56.9) >100 EBIT 388.6 341.3 176.8 (48.2) (54.5) 663.1 518.2 (21.9) EBIT Ex Fair Value Gain & EI 360.9 341.3 256.5 (24.8) (28.9) 635.4 597.9 (5.9) Fair Value Gain & EI 27.7 0.0 (79.7) >100 >100 27.7 (79.7) 0.0 Interest Income 7.6 12.8 12.6 (1.8) 64.8 22.6 25.4 12.2 Finance Cost 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 PBT 396.2 354.1 189.4 (46.5) (52.2) 685.7 543.5 (20.7) PBT Ex Fair Value Gain & EI 368.5 354.1 269.1 (24.0) (27.0) 658.0 623.2 (5.3) Tax (107.8) (103.2) (75.2) (27.1) (30.2) (197.3) (178.4) (9.6) Minority Interests (14.9) (8.1) (5.1) (37.7) (66.1) (25.3) (13.2) (47.8) Reported Net Profit 273.5 242.9 109.1 (55.1) (60.1) 463.1 352.0 (24.0) Normalised Net Profit 245.8 242.9 188.8 (22.2) (23.2) 435.4 431.7 (0.8)

EPS 6.2 4.4 2.0 (55.1) (68.1) 10.5 6.4 (39.1) Core EPS 5.6 4.4 3.4 (22.2) (38.5) 9.6 7.8 (18.3) DPS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ppt ppt ppt Operating profit margin* 30.6 37.8 46.0 8.2 15.4 30.4 41.5 11.1 Property Development OP Margin 29.0 36.4 32.3 (4.1) 3.3 28.6 34.6 6.0 Property Investment OP Margin 56.6 64.1 59.1 (5.0) 2.5 58.0 61.5 3.5 Leisure & Hospitality OP Margin 23.3 15.5 20.0 4.5 (3.3) 17.4 17.9 0.4 Other operations OP Margin 74.3 78.4 86.2 7.8 11.9 72.8 83.0 10.2 Profit before tax margin* 30.8 40.7 38.0 (2.7) 7.2 31.4 39.5 8.1 Net profit margin* 20.6 27.9 26.7 (1.2) 6.1 20.8 27.4 6.6 Effective tax rate * (32.2) (32.0) (30.7) 1.3 1.4 (33.0) (31.5) 1.5 * Excludes Fair Value Gains

Stock Recommendation Guideline BUY : Total return within the next 12 months exceeds required rate of return by 5%-point. HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point. SELL : Total return is lower than the required rate of return. Not Rated : The company is not under coverage. The report is for information only.

Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting. Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.

Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.

As of Monday, February 26, 2018, the analyst, Thiam Chiann Wen, who prepared this report, has interest in the following securities covered in this report: (a) nil

Kaladher Govindan – Head of Research

TA S ECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad

Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 203 2 504 8 www.ta.com.my

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