RHB Research reiterates that earnings for IOI Properties Group Bhd's (IOIPG) property investment division should strengthen quite significantly over the next one to two years, given its stronger recurring income stream.
IOI City Mall Phase 2, which has 1.04 million sq ft of net lettable area (NLA) began operating in August 2022.
In a sector update today (Jan 4), RHB's analyst Loong Kok Wen said while the mall's second phase already has a committed occupancy rate of 85 per cent, only about 50 per cent of tenants have started operating.
"Based on our estimate, Phase 2 will likely contribute RM85 million to RM90 million in rental income on a full-year basis after the first year," she said.
Loong said the management (IOIPG) also indicated that an anchor tenant has committed to take up 29 per cent of the NLA in Central Boulevard Towers in Singapore (1.28 million sq ft of NLA), which will be completed at the end of this year.
This Green Mark Platinum-grade office building is estimated to generate RM350 million to RM400 million in rental income per annum, she said.
"Given the robust earnings from the property investment segment in the coming years, we do not discount the possibility of a higher payout ratio going forward. Note that its fiscal year 2023 (FY23 to FY25F dividend yield of five per cent to six per cent is already the highest among all the large-cap developers.
"Besides the conservative 16 per cent payout over the last two years (FY20-FY21), possibly due to the impact of the pandemic, IOIPG's historical payout ratio ranges from 25 per cent to 37 per cent," she said.
Loong said that two new sizeable commercial assets should lift the EBIT contribution of IOIPG's property investment division to around 35 per cent in one to two years (versus 20 per cent currently), providing potential upside to dividend payouts.
RHB has a new target price (TP) of RM1.40 for IOIPG from RM1.18, a 31 per cent upside.
"Our TP is based on a 65 per cent discount to RNAV (from 70 per cent), with a six per cent ESG discount applied," Loong said.
IOIPD is a specialised township developer in Malaysia, with anchor projects in Puchong, the Klang Valley, and Kulai, Johor. Its overseas exposure includes Xiamen in China and Singapore.
According to Loong, the key drivers for IOIPG are new property sales and new landbank acquisitions.
She said RHB recently hosted a virtual meeting with IOIPG's chief executive officer Datuk Voon Tin Yow, chief financial officer Melissa Tan, and corporate finance general manager Chee Ban Tuck, who confirmed there will be no change to the FY23 sales target of RM1.9 billion.
While FY22 saw higher inventory sales, about RM1.4 billion worth of new projects will be rolled out in FY23. These include townhouses and terraced homes at 16 Sierra, with a gross development value (GDV) of RM262 million, semi-detached units in existing townships in Bangi and Johor, as well as condominium and retail shops at Xiang An, Xiamen (GDV: RMR436 million).
"Given the gradual easing of zero-COVID measures in China, we are upbeat on its launch of the Xiang An project next year," she said.