IOI Properties’ valuation attractive: BIMB Securities
> Research firm initiates coverage with ‘buy’ call on property developer due to stronger earnings for 2015
PETALING JAYA: BIMB Securities Research has initiated its coverage on IOI Properties Group Bhd, with a “buy” recommendation on the back of attractive net tangible assets per share of RM2.97.
This works out to be a 78 sen or 35.6% premium against its closing price of RM2.19 yesterday.
BIMB has given a target price of RM2.49 for IOI Properties based on a three-year conservative blended price-to-earnings (PE) ratio and price-to-book value (PBV) ratio of 12.2 times and 1 time respectively.
“We favour the group for its solid fundamental which gives reassurance to invest for the long haul,” the research house said.
As at the second quarter of 2015, IOI Properties’ total cash reserve stood at RM608 million, with a lower net gearing of 0.2 times compared with other big cap property counters.
BIMB said IOI Properties’ township developments will ensure the sustainability of its sales as well as earnings visibility with a potential gross development value (GDV) of RM16 billion from its on-going & up-coming projects.
The on-going and up-coming township projects are projected to contribute about 53% to total projected GDV of RM16 billion for the next 3 years.
“We expect its two new townships namely Bandar Puteri Warisan Sepang (332 acres) and Bandar Puteri Bangi (360 acres) to sustain sales going forward,” it said.
The sales for the phase 1 of Bandar Puteri Bangi project have hit 70% since its launch in Jan this year. IOI Properties’ current unbilled sales stand at RM1.45 billion.
BIMB noted that IOI Properties’ landbank reserve of 10,000 acres could last for another 10 years with a potential GDV of more than RM50 billion.
BIMB reckoned that the group’s residential projects priced below RM1 million with the exception of Penang as vital to entice the mass market buyers.
“Though not cheap, we deem IOI Properties’ prices are still within the reach of most middle income earners. As loan approvals are now more stringent, we view the group’s pricing policy as strategic since they cater mostly for genuine demand,” it said.
Worth noting is that the group is enjoying higher than industry’s average margins of 30% due to its low land costs. Its has garnered an average gross margin of 57% over the past three years.
“We foresee the group’s high margin to be sustainable due to low land cost. Moreover with prevailing land holding of almost 10,000 acres, there is no need to replenish it (landbank) anytime soon thus we expect its margins to remain on the high side,” it added.
BIMB added that steady recurring income from its property investment segment with mostly Grade-A buildings under its ambit which also suggests for higher capital appreciation and rental yields going forward.