HLIB Research said IOICB accounts for significant value as an asset and its improving occupancy position it as an important future growth driver for the property group.
PETALING JAYA: The share price of IOI Properties Group Bhd
(IOIProp) has seen a decline following a weak start to its first quarter of financial year 2025 (1Q25).
This was primarily due to higher interest costs from its IOI Central Boulevard (IOICB) project in Singapore.
However, Hong Leong Investment Bank Research (HLIB Research) said IOICB accounts for significant value as an asset and its improving occupancy position it as an important future growth driver for the property group.
“IOIProp’s share price declined by 21 sen or 9.5% on Nov 26, following the release of its 1Q25 results, which reported a core profit of RM74.7mil – significantly below its usual quarterly run rate of RM120mil to RM220mil.
“The weaker performance was primarily driven by the higher interest costs from IOICB.
“While we had guided for a slower start to IOIProp’s financial year 2025 in our Nov 14 report, the results may have still caught some investors off guard, particularly those who may not be following the company closely,” the research house said in a report yesterday.
According to HLIB Research, the commencement of IOICB’s operations should be viewed positively, as it has significantly improved the group’s cash flow.
“IOICB is the single largest asset coming live for IOIProp. Its asset value of RM14.4bil as of end-June 2024 makes up a staggering 67% of the group’s property investment portfolio of RM21.5bil.
“So its scale naturally translates to a significant impact on the group’s earnings – both positive and negative,” HLIB Research said.
The research house added that, as of end-October, IOICB’s committed occupancy rate stood at 68%, providing certainty and visibility for future recurring income.
“We believe that the asset turning profitable is an eventuality. Once IOICB receives the third phase of its Temporary Occupation Permit by the end of the year, we expect a ramp up in occupancy to near full occupancy given that the vacancy rate in the central business district is typically less than 5%.”
Additionally, occupancy at the group’s South Beach Tower, two km away from IOICB, is also on the rise.
South Beach Tower, a 49.9%-owned office building by IOIProp, has 507,000 sq ft of net lettable area.
As of end-September, the group reported that its committed occupancy rate had improved significantly to nearly 90%.
Citing property consultants Cushman and Wakefield, the research house said much of the remaining available space is either leased or in advanced negotiations, suggesting that occupancy could approach full capacity in the near future.
“An increase in occupancy rate from 70% to 100% represents estimated additional annual revenue of approximately RM33.1mil for IOIProp’s effective stake, assuming a rental rate of S$11 per sq ft and an exchange rate of RM3.3 to S$1.
“As such, South Beach Tower is another key asset that should see sequential improvements ahead for the group.”
