IOIPG: Financial Performance Falls Short Amid Soaring Costs, Target Price Trimmed
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The core net income for the financial year ended 2025 (FY25) significantly missed expectations, reaching RM296.9 million, which accounted for only 76% of both the investment bank’s and consensus estimates. This performance represents a substantial 45.1% year-on-year decline, signaling a challenging period for the company.
Performance Review
The fourth quarter of FY25 (4QFY25) saw core net income slump dramatically to RM15.5 million, an 86% quarter-on-quarter drop. This occurred despite a 17.9% increase in revenue, indicating that top-line growth could not offset the escalating cost pressures. This weaker performance was primarily attributed to a confluence of significant cost increases and reduced margins.
Key factors included a substantial surge in tax expenses during 4QFY25, jumping to RM198.6 million from RM68.7 million in 3QFY25. This increase was largely due to a higher property tax assessment in Singapore. Additionally, the company faced a substantial increase in marketing expenses, which rose by 163% quarter-on-quarter, and a contraction in its gross profit margin to 32% in 4QFY25 from 48% in the preceding quarter.
On a yearly basis, overall interest expenses soared to RM418 million in FY25 from RM18.9 million in FY24. This dramatic rise is linked to the completion of IOI Central Boulevard Towers in Singapore, with interest costs being expensed out. The absence of land sales, which had contributed RM365 million to FY24 earnings, further exacerbated the decline in FY25 profitability.
Despite these significant headwinds, the property development segment showed some resilience, with its operating profit rising 16.3% quarter-on-quarter due to robust sales in both Malaysia and China. The hospitality and leisure segments also reported narrowing losses, offering a partial offset to the broader decline.
Sales and Future Outlook
New property sales for FY25 amounted to RM1.81 billion, a decrease from RM2.1 billion in FY24, which had benefited from substantial land sales. Projects in Malaysia were the primary drivers of these sales, contributing a significant 90% of the total. Looking ahead, the investment bank anticipates new sales to remain within the RM2 billion range, with Malaysian projects expected to continue leading sales efforts. Unbilled sales notably increased to RM851 million in 4QFY25 from RM718 million in 3QFY25, providing some revenue visibility.
Investment Bank’s View
In light of the weaker-than-expected earnings visibility, the investment bank has revised its FY26 and FY27 earnings forecasts downward by 38% and 32% respectively. Consequently, the target price has been adjusted to RM2.09 from RM2.15. The firm maintains a “NEUTRAL” recommendation, citing limited near-term catalysts for the company and an elevated net gearing ratio of 0.7x. The RNAV discount has also been widened to 59% from 58% to reflect the subdued earnings outlook.
