This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

Award-winning real estate developer IOI Properties Group Bhd (IOIPG), which aims to be trusted to always deliver, joins The Edge Billion Ringgit Club (BRC) winners’ list for the first time this year, bagging the award for highest growth in profit after tax (PAT) over three years among property companies with a market capitalisation of above RM3 billion.

With stellar earnings plus ongoing real estate developments on both sides of the Causeway, as well as other parts of Malaysia plus China, IOIPG is naturally on the radar of investors looking for exposure in Johor amid renewed interest in property plays. Among other things, interest has been piqued by the launches of its high-value projects in Singapore and China (IOI Palm City, Xiamen) in the current financial year ending June 30, 2024 (FY2024), which includes the exclusive Marina View Residences landmark integrated development in Singapore that is expected to contribute some RM8.56 billion in gross development value (GDV).

Since closing at RM1.066 at the BRC membership cut-off date of March 31, 2023 — thereby giving IOIPG a market capitalisation of RM6.06 billion — the stock has been on a tear, reaching as high as RM1.86 on Oct 12 to give the company a market cap of RM10.24 billion.

There is no denying the difficult patch that real estate developers went through during the Covid-19 pandemic, as reflected by the low single-digit growth. Yet, showing growth is no small feat, considering that it was achieved despite the supply glut and still weak underlying sentiment.

During the BRC awards’ three-year evaluation period, IOIPG was the only member in its category to show positive earnings growth, with its risk-weighted three-year PAT compound annual growth rate coming in at 1.3% as its net profit grew from RM661.3 million in FY2019 to RM686.7 million in FY2022. Earnings did fall year on year to RM504.7 million in FY2020 before recovering to RM660.2 milion in FY2021.

Its net profit doubled from RM686.7 million in FY2022 to RM1.39 billion in FY2023, driven by the recovery in its property investment and hospitality and leisure segments plus a fair value gain of RM716.8 million. During the year, its property development segment achieved sales with contracts exchanged of RM1.96 billion. Local projects contributed RM1.67 billion, or 85%, to its total sales, with the remaining 15% coming from overseas projects in China and Singapore that contributed RM290.4 million.

At the time of writing, Bloomberg data showed that all seven analysts covering the stock had “buy” recommendations with target prices ranging from RM1.75 to RM2.48, averaging at RM2.02 which implies a 13% upside potential at its close of RM1.79 on Oct 27 (RM9.86 billion market cap). The share price had gained 69% year to date.

IOIPG declared a dividend of five sen per share for FY2023, translating into a dividend yield of 2.8%.

As at end-June 2023, it had cash and cash equivalents of RM2.68 billion against RM2.05 billion as at end-March 2023. Nonetheless, with gross borrowings of RM17.86 billion, it was in a net debt position of RM15.18 billion at end-June this year.

Looking ahead, IOIPG offers hope while tempering expectations, highlighting the tough environment in China due to the weaker-than-expected economic recovery. “Despite the sluggish property sector, where there are concerns over the liquidity of the Chinese developers, there are renewed enquiries on our developments at IOI Palm City and IOI Palm International Parkhouse in Xiamen.”

Over in Singapore, IOIPG notes that the construction of IOI Central Boulevard Towers is targeted to be completed by 2023. The group has secured leases with internationally renowned companies in businesses ranging from asset management and fast-moving consumer goods to food and beverage as well as legal firms.

IOIPG expects the exclusive Marina View Residences — which comprises 683 residential units above W Hotel — “to attract resilient demand from the local Singaporean buyers who have strong spending and purchasing power, underpinned by Singapore’s robust economy”.

Hong Leong Investment Bank Research, which has the highest target price for IOIPG, told clients in an Oct 5 note that “the stock is deep in value, given that its property investment segment alone is expected to have a market value of more than two times its current market capitalisation”. IOIPG’s market cap stood at RM9.2 billion on Oct 5.

“FY2024 represents an important execution year for IOIPG given the execution of two of the group’s biggest projects, namely the commencement of IOI Central Boulevard and the launch of Marina View Residences. The group had in recent years vastly expanded its property investment and hotel assets. These assets will give the group a competitive edge given that they provide stable and recurring cash flow to the group, which will allow the group to expand at a faster pace. Thus, we see FY2024 as the pivot point as the group enters a new phase of growth, propelling it to new heights,” HLIB wrote.

RHB Research, which has a RM2.10 price target for IOIPG and also expects the launch of Marina View Residences to boost its property sales, told clients in a Sept 4 note that IOI Central Boulevard leases are “expected to be a major earnings catalyst” for IOIPG in FY2024 and FY2025.

Kenanga Research, which has a RM1.75 target price for IOIPG, also expects a stronger FY2024 for the group, driven by the launch of high-value projects in Singapore and China. “We continue to like IOIPG due to its focus on high-value products in mature townships and its well-diversified and expanding investment property portfolio across several key regional hubs,” it said in an Aug 29 note.

Founded by the late Tan Sri Lee Shin Cheng, IOIPG is 65.67% owned by Vertical Capacity Sdn Bhd, which is controlled by his sons Datuk Lee Yeow Chor and Lee Yeow Seng, as well as his daughter Lee Yoke Har. Last July, Yeow Seng was redesignated as the group CEO from executive vice-chairman following the retirement of Datuk Voon Tin Yow. Yeow Chor and Yoke Har are non-independent non-executive directors.

The Employees Provident Fund is a substantial shareholder of IOI Properties with a 7.49% stake.

If IOIPG continues to deliver growth, this will prove to be the first of many more appearances for the company on the BRC winners’ list.

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