Investors may have missed IOI Properties' improving earnings outlook, CGS International says

• The potential listing of two real estate investment trusts (REITs), which CGS International is confident will materialise, will lower IOI Properties’ gearing levels, the house noted.

KUALA LUMPUR (Aug 11): IOI Properties Group Bhd's (KL:IOIPG) potential earnings improvement has been overlooked by investors gripped by concerns over its elevated debt, said CGS International.

An expansion of investment properties and contributions from the W Residences luxury project will help drive an average 16% annual growth in earnings over the next three financial years ending June 30, according to the research house’s estimates in initiating coverage of IOI Properties.

The potential listing of two real estate investment trusts (REITs), which CGS International is confident will materialise, will lower IOI Properties’ gearing levels, the house noted.

“Our analysis also suggests that IOI Properties’ balance sheet could improve drastically to a net cash position should the company opt to de-consolidate the REITs from its financial statements,” CGS International said.

The house starts covering the stock on an ‘add’ call, equivalent to ‘buy’, with a higher-than-consensus target price of RM3.25.

Shares of IOI Properties have rebounded more than 30% from their April lows, but were mostly unchanged from the end of 2024 amid worries of balance sheet strain from a shopping spree involving over RM1 billion last year.

Net debt, as a percentage of equity, has risen to 75% from about 50% at the end of the financial year ended June 30, 2020. The bulk of its total borrowings are denominated in the Singaporean dollar.

A majority of analysts however are bullish, with seven ‘buy’, two ‘hold’ calls and only one ‘sell’. The average target price is RM2.64, according to Bloomberg, which suggests a potential upside of 19% in the next 12 months from its last price.

IOI Properties has been reported exploring listing one REIT for its Malaysian assets worth up to RM8 billion and another for its Singapore properties valued at RM26 billion, which if successful could reduce its net gearing to less than 40% of equity at the end of June 2028, CGS International said.

Apart from helping to deleverage, the listings could also serve as “structural drivers” of its valuations and narrow the stock’s deep 60% discount to restated net asset value per share, the research house added. 

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