PETALING JAYA: IOI Properties Group Bhd’s (IOIProp) Central Boulevard in Singapore can generate RM350mil to RM450mil in rental income per year, assuming a conservative rental rate of SG$10 (RM31.05) to SG$11 (RM34.15) per square foot, according to RHB Investment Bank Research.
“This should form a good earnings base for IOIProp to raise its dividend payout in the future. We are optimistic on the rental prospects of this asset as quality office space is highly sought after with the expansion of regional technology or telecommunication sectors in recent years.
“IOIProp’s management also indicated that the initial response for leasing looks quite promising,” said the research unit.
The construction of this Grade A Green Mark Platinum office towers (with a net lettable area or NLA of 1.3 million sq ft) will be completed in 2023.
RHB Investment Bank Research pointed out that IOIProp’s income from property assets is set to mitigate pressure on development margins, following a recent virtual meeting with CEO Datuk Voon Tin Yow, who indicated that the company was prepared to ride through this volatile period, given its diversified products and geographical locations, as well as contribution from investment properties (14% of revenue currently).
However, IOIProp’s management has guided that the company be extra careful with the timing of new property launches, given the rising building material prices.
“In our view, the early construction of projects (before launching) should help in preserving margins too, as more materials are secured at lower prices much earlier,” said the research unit.
For its financial year ending June 30, 2022 (FY22), IOIProp expects RM2.1bil in sales.
The company expects property sales in Malaysia to be softer in the first quarter of 2022. However, China projects will likely be the key contributor to property sales in the second half of FY22, as about RM960mil worth of properties were launched in Xiamen/Xiang An in December last year.
Meanwhile, IOI City Mall Phase 2 is set to open in the second half of 2022. Phase 2 of the mall (with an NLA of 1.1 million sq ft) is slated to open in June or July.
Committed tenancy for the mall has reached over 70%, including four anchor tenants.
“We estimate that Phase 2 should contribute about RM30mil to RM40mil per annum in rental income (assuming 75% occupancy) during the initial years of operation,” said the research unit.
It pointed out that despite its stable earnings growth, IOIProp did not enjoy a sustainable share price recovery similar to its peers.
“Value has emerged given the increasing stream of recurring income, especially upon the completion of Central Boulevard next year,” said RHB Investment Bank Research, which has maintained its “buy” call and RM1.38 target price on the stock (37% upside and estimated 3% FY22 yield).