Nazira Abdullah of UOB Kay Hian has initiated coverage on IOI Properties with a "buy" call, citing growing contributions from its investments in Singapore that will lead to a three-year earnings growth at a CAGR of 26%.
Given the company's sprawling portfolio of investment properties carried at some RM18 billion, further upside can come from a potential spin-off of some of these assets into a REIT, she adds.
In her Jan 18 note, Nazira figures IOI Properties, led by CEO Lee Yeow Seng, to be worth RM3.06 per share, which is an upside of some 50% from the current levels. The target price is pegged to a 45% discount to its RNAV of RM5.53 per share.
For years, IOI Properties was better known for developing townships across Malaysia, its home market. It soon diversified into building malls, offices and other higher-end housing.
In recent years, IOI Properties has been making its mark in Singapore with several high-profile projects.
IOI Central Boulevard Towers, built on a site the company paid $2.57 billion for back in 2016, will be ready soon and thus contribute "meaningfully" to the company's FY2025 earnings ending June 30 2025.
Assuming an average monthly rental of $12 psf and 95% occupancy, Nazira figures this Grade A office development can contribute annual revenue of $172 million.
Next, IOI Properties has an upcoming luxury residential project, Marina View, that is slated for launch in 3QYF2024, with earnings starting to contribute meaningfully from 2HFY2025 onwards.
Besides 683 residential units, Marina View will have a hotel component of 350 rooms, giving it a gross development value of $2.58 billion.
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"Although the Singapore property market is undergoing cooling measures, we believe demand for this project will improve gradually as the market stabilises given its prime location in the heart of Marina Bay's CBD," says Nazira.
The development is close to three MRT stations: Shenton Way, Marina Bay, and Downtown. It is also adjacent to IOI Central Boulevard, potentially offering cross-selling opportunities.
In its home market IPO Properties sits on a "substantial" landbank including 3,474 acres in Kulai, and another 3,800 acres of non-core land, half of which is in Johor.
The way Nazira sees it, this positions IOI Properties well to capture the growing theme of an increasingly vibrant Johor.
"The region is gaining momentum with government incentives, spillover demand from Singapore, the upcoming launch of the Johor Bahru-Singapore Rapid Transit System, and the establishment of a special economic zone in Iskandar Malaysia," she says.
"IOI Properties' successful track record in its Bandar Putra Kulai township, marked by strong take-up rates for residential and industrial developments, positions it favourably to capitalise on the growing opportunities in Johor," she adds.
The various projects slated for launch in Malaysia will have a total gross development value of just over RM2 billion, bringing the total to a record RM10.6 billion for the current FY2024 if the Singapore projects are included. In contrast, the GDV of the projects launched in the preceding FY2023 was just RM1.2 billion.
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With its growing investment properties portfolio, the company has plans to spin off a REIT, which was alluded to by CEO Lee in an interview with The Edge Singapore last October.
"It is about time we unlock value for our shareholders," said Lee, referring to his Singapore office assets which comprise not just the upcoming IOI Central Boulevard Towers but also the existing South Beach Tower which the company owns as a joint venture with City Developments.
According to Nazira, the company is adding 1.29 million sq ft to its existing 8.15 million sq ft of net lettable area (NLA) via IOI Central Boulevard Towers.
In the current FY2024, the company will also complete the 480-room Moxy Hotel in Putrajaya, the 370-room Sheraton Grand Xiamen at IOI Palm City, Xiamen, as well as the addition of a new hotel from its recent acquisition of W Hotel KL, bringing the total number of hotel room keys to 2,241.
"These should enhance IOI Properties’s portfolio and pave the way for a future REIT IPO," says Nazira.
"Although specific details regarding the IPO are unavailable, the latest carrying value of all investment properties excluding hospitality portfolio stands at RM18 billion, surpassing KLCCP Stapled Group, the largest REIT in Malaysia," she adds.
In just the past month, IOI Properties have gained around 25%. Despite so, Nazira believes that the company is still trading at an "undemanding" valuation against its peers, with a FY2024 PE of 14x and PB of 0.5x. In contrast, the industry average isd 18x PE and 0.7x PB.
As at 10.53am on Jan 19, IOI Properties gained 1.9% to change hands at RM2.15.
