Lee raises stake in IOI Properties
This comes on the back of developer’s improving prospects in S’pore
PETALING JAYA: In recent days, some major shareholders of IOI Properties Group Bhd’s (IOI Prop) have taken the opportunity to up their stakes in the company on the back of the developer’s improving prospects in Singapore, along with undemanding valuations.
The buying support sends a signal to the market that the company is still poised and on track to post satisfactory financial results in the face of a strengthening ringgit environment.
As it is, IOI Prop had a positive start for its first-quarter earnings to Sept 30, 2018 when it posted a 28.1% year-on-year (y-o-y) jump in net profit to RM242.85mil, due to higher take-up rates from its overseas projects in Singapore and Xiamen, China.
The higher profits were achieved despite a slight drop in revenue of 3.28% to RM869.98mil.
According to analysts, IOI Prop derives some 46% of its first quarter sales from projects in Singapore and China.
Its shares have been fairly active in the past week with presumably these major shareholders mopping up the excess liquidity in the open market, providing ample support even as prices retraced slightly.
Stock exchange data show that the company’s main controlling shareholder and founder Tan Sri Lee Shin Cheng had taken the opportunity to further increase his direct interest to 2.395% to date from 0.9% in October, in addition to his existing indirect interest of 60.79%.
The Employees Provident Fund (EPF) had over the past few days also increased its net stakes in the company to 5.91% on Dec 19 from 5.821% on Dec 12.
The EPF now holds some 325.42 million shares in IOI Prop.
“Forex issues aside, the stock is now trading at a price-earnings ratio of 18 times FY18 earnings and also offers a dividend yield of 3.3%. It is also down 6.65% this year. I think investors are seeing some value here,” said one analyst.
Bloomberg’s poll of eight analysts have four “buy” calls and four “hold” calls on the counter, with a 12-month target price of RM2.34 versus its current RM1.82.
The ringgit has been strengthening in recent weeks and has risen some 1.87% against the Singapore dollar in the year-to-date period (YTD). Against China’s yuan, the ringgit had strengthened by 3.75% YTD.
However, analysts pointed out that if the growth in sales could outperform the effects of the currency translation due to the changes in exchange rates, then there would be negligible effect on a net basis.
MIDF Research, in its recent report, said that local projects contributed 54% to the company’s new sales, while Singapore projects contributed 34% and the remaining 12% was from its projects in China.
There are also other variables to consider as the group has the remainder of its contributions coming from projects in Malaysia.
Commenting on this, IOI Prop’s chief operating officer Teh Chin Guan tells StarBiz that the impact would be minimal, if any, from the strengthening of the ringgit.
“Projects in Singapore are financed by surplus funds generated from Singapore operations and external banks borrowings in Singapore, so there is no effect from the ringgit strengthening,” Teh said.
Notably, while the ringgit weakened by 1.20% at its trough from the beginning of the company’s first quarter (from July to September) and strengthened by 0.51% to its peak from the beginning of the quarter, IOI Prop still managed to post a strong set of financial results for its first quarter of 2018.
The first quarter saw the company posting a 28.1% y-o-y jump in net profit to RM242.85mil on the back of a 3.28% drop in revenue to RM869.98mil.
Revenue at its property development segment decreased by 6% y-o-y to RM742.2mil while operating profit rose by 21% y-o-y to RM270.2mil, with higher revenue in the preceding year’s corresponding quarter mainly due to higher takeup rates from its overseas projects in Singapore and Xiamen.
This latest quarter also saw its bottom line being boosted by the higher operating profit due to development projects in Malaysia in both the Klang Valley and Johor, as sales improved locally.
The company remains confident in its product offerings in the coming financial year ending June 30, 2018 (FY18) and would like to repeat the successes of the previous financial year.
“We aim to achieve the same level of sales that we had in FY17 of RM2.5bil to RM2.8bil,” Teh said.
He said sales in Malaysia would be focused on its new project launches in Bangi, Kota Warisan and 16 Sierra for FY18.
He noted that demand is still holding up well, especially for properties that are in good locations.
“Those landed and mid-priced condominiums with good design and in good locations are still sellable,” he said.
Another segment that is doing well is its leisure and hospitality business.
The newest entry to its investment portfolio, Le Meridien Putrajaya, had boosted the leisure and hospitality segment’s operating profit by 161% to RM7.5mil.
Moving forward, Teh said the company expected Le Meridien to perform better in FY18.
“This is a good addition to our portfolio last year and we see the hotel doing even better this financial year.
“The hotel would register full year results this financial year as compared to FY17’s operations for 10 months and partial opening of rooms initially,” he said.
Meanwhile, its property investment segment had also seen an improvement in its results, with operating profit rising 16% to RM49.4mil on higher occupancy and rental rates from its retail assets.
Teh said the IOI City Mall in Sepang is performing well and is expected to do even better, moving forward. The company is investing RM500mil to expand the mall.
“We believe the mall will be the driver for the division, given its location and exposure to people in the south such as Bangi and Putrajaya.
“We are also currently carrying out the expansion of IOI City Mall by adding about 1 million sq ft in phase 2,” he said.