IOI Properties Group’s China ops seen heading back to normal

IOI Properties Group Bhd
(March 18, 86 sen)
Maintain buy with a lower fair value of RM1.54:We cut our financial year ending June 30, 2020 (FY20) to FY22 net earnings forecasts by 20%, 17% and 16% respectively for IOI Properties Group Bhd (IOIPG).

During a recent engagement, the company updated us on the latest developments, particularly its operations in China. It had been a challenging environment for the China operations since the beginning of the Covid-19 outbreak. With lockdowns and curfews, workers were not able to return to their workplace and economic activities were limited.

The situation has improved since early March as factories in China gradually restarted production and workers returned to their workplaces. As of mid-March, economic activities had resumed, picking up capacity. IOIPG plans to launch its Xiamen project progressively in May should the condition continue to improve.

We believe the situation in Malaysia is less serious than in China. Nonetheless, we shall remain cautious. With the movement control order in place from yesterday to March 31, we expect a negative impact on local property sales. IOIPG’s investment property and hospitality and leisure businesses would be affected as well.

The management is still assessing local property sales and may consider reducing its target. We cut our FY20 to FY22 net earnings forecasts to reflect the timing of the recognition of property development and weaker revenue from the hospitality and leisure business segment.

We reckon the long-term outlook for IOIPG remains positive, anchored by contributions from its property development projects, stable income from its property investments and the growing leisure and hospitality business. We view the recent selldown of the stock as a buying opportunity with a potential upside of more than 70%. —AmInvestment Bank, March 18