Losses in property segment drag IOI Properties
KUALA LUMPUR: IOI Properties Group Bhd (IOI Properties) experienced weaker than expected earnings for its third quarter of financial year 2018 (3QFY18) which analysts peg to be due to lower revenue from its property development segment.
Affin Hwang Investment Sdn Bhd (AffinHwang Capital) saw that the firm’s property development segment fell by 35 per cent year on year to BM1.72 billion.
This comes as IOI Properties has seen lower progress billings from the development projects in Klang Valley and has fewer units remaining for sale in both its Singapore and Xiamen projects.
Notwithstanding the weaker revenue, its earnings before interest, tax, depreciation and amortisation for its first nine months of financial year 2018 (9M18) margin has remained robust at 36 per cent. This note marks a transfer of coverage.
“Sequentially, IOI Properties’ 3QFY18 core net profit fell by 29 per cent to RM120 million, tracking a 24 per cent decline in quarterly revenue. IOI properties’ 3QFY18 revenue of RM541 million was its lowest since 3QFY15, ”AffinHwang Capital said in a note yesterday.
“Similarly, the group recorded a weaker 3Q18 EBITDA margin of 29.1 per cent, below its three-year average of 36 per cent.
Notwithstanding the challenging market conditions, IOI Properties continued to embark on its marketing efforts to unlock potential sales in Malaysia. On the international front, it will soon launch the sale of its Xiamen residential projects and the completed Singapore joint venture projects.
Meanwhile, Kenanga Investment Bank Bhd (Kenanga Research) saw that the group was offering up less new launches, noting that there was no official sales target for FY18.
To date, call launches have been slower as the group has only launched RM1 billion year to date – mainly from on-going townships – due to uncertainties leading up to GE-14 while the landscape remains challenging as IOIPG’s products are in the mid-to-highend segment.
“For the remaining part of the year, the group will be launching Xiamen 2. There is also another c.RM0.2b GDV remaining for Trilinq, Singapore to be sold as well. We gather that soft launch of its Sentosa Cove projects, namely Cap Royale and Seascape, which have a combined GDV of RM6.6b, will be taking place soon.
“These JCE projects are completed ones, meaning billings of sales will be like Trilinq. However, risk lies with timing of SPA sales from the Sentosa Cove project spilling over into FY19 while we note that Sentosa Cove projects are luxurious ones, which may take a longer time to clear compared to Trilinq.”
This led Kenanga Research to reduce its core net profit forecasts for FY18 and FY19E by 15 to 16 per cent as it reduced FY18-19E sales targets by 15 to 11 per cent to RM2.21 billion to RM2.4 billion to account for the lower value launch for Xiamen 2 and timing of release of Sentosa Cove projects.
“We also change our sales mix to reflect more Sentosa Cove sales and fewer local launches. Unbilled sales have dropped by 21 per cent quarter on quarter to RM990 million which provide less than oneyear visibility.”