Update 11 July on IOIPG

US stocks settled mixed Thursday with the S&P 500 posting a new all-time high. Strength in airline stocks was positive for the broader market. Stocks also found support after the weekly US initial unemployment report showed jobless claims unexpectedly fell to an 8-week low, a sign that the US labor market remains strong.

Bond yields fell from early highs Thursday to give equities a lift after solid demand was seen for the Treasury’s $22 billion auction of 30-year Treasuries. Dovish comments from San Francisco Fed President Mary Daly were also supportive for stocks when she said she “still expects two 25 bps interest rate cuts this year.”

Stocks continue to see downward pressure due to uncertainty about President Trump’s trade policies. On Wednesday, President Trump issued a new set of tariff demands on several countries, including a 50% tariff rate on Brazil. Trump also confirmed that the US will begin levying a 50% tariff on copper imports, effective August 1.

Trump also stated that drug companies could face tariffs as high as 200% on imports if they don’t relocate production to the US within the next year. In addition, despite stating that the US was close to a trade deal with India, Trump said he would still impose a 10% tariff on India’s goods for their participation in BRICS.

US weekly initial unemployment claims unexpectedly fell -5,000 to an 8-week low of 227,000, showing a stronger labor market than expectations of an increase to 235,000. However, weekly continuing claims rose +10,000 to a 3.5-year high of 1.965 million, right on expectations and a sign that out-of-work Americans are finding it difficult to secure a new job.

Federal funds futures prices are discounting the chances at 7% for a 25 bps rate cut at the July 29-30 FOMC meeting. September 10-year T-notes closed down -1.5 ticks Thursday. The 10-year T-note yield rose +1.8bp to 4.350%.

Treasuries were under pressure Thursday after US weekly jobless claims unexpectedly fell to an 8-week low, but recouped most of their decline on solid demand for the Treasury’s $22 billion auction of 30-year T-bonds, which saw the bonds awarded at a yield of 4.889%, slightly lower than the 4.890% pre-auction yield just before the bidding deadline, a sign of strong demand.

European government bond yields on Thursday were mixed. The 10-year German bund yield rose to a 3-month high of 2.710% and finished up +3.2 bps at 2.705%. The 10-year UK gilt yield fell -1.6 bps to 4.595%.

Tesla closed up more than 4% to lead gainers in the Nasdaq after CEO Musk said the company will launch deployment of its driverless taxis in the San Francisco Bay area “in a month or two”, pending regulatory approvals.

Nvidia closes above $4 trillion for the first time

Investing.com, July 10, 2025

Nvidia has closed with a market cap of over $4 trillion for the first time on Thursday, cementing the AI chipmaker’s status as the world’s most valuable company.

Shares of Nvidia finished the trading session up 0.75% at $164.10, giving the company a market capitalization of $4.004 trillion. The achievement comes amid continued strong demand for artificial-intelligence technologies that power Nvidia’s business. Shares are now up 89% from their lows in April, caused by tariff fears.

This marks the first time Nvidia has officially closed a trading day above the $4 trillion threshold, though the company’s market value had briefly exceeded this level during Wednesday’s session before settling at approximately $3.97 trillion at the close. It is the first company ever to hit the new mark and now close above it.

"We reinvented computing for the first time since the 60s, since IBM (NYSE:IBM) introduced the modern computer architecture," Nvidia CEO Jensen Huang said today on MSNBC’s Morning Joe, discussing the milestone. "And over the last 33 years, we’ve been working on reinventing computing. And the last five years, it really took off."

Huang spoke candidly today about the rapid progress in AI, emphasizing a new capability: reasoning. “It’s able to think,” he said. “Before it was able to understand…generate content. But now it can reason…do research…it can solve problems that it has never been trained to solve.”

He likened this leap to the birth of a new industry, calling it the first since the invention of the power grid. “We invented, essentially, a new industry for the first time in 300 years,” Huang said. “That last industry was power generation. Now, we have an industry that generates intelligence.”

This new era, he explained, will reshape work. “Many jobs will be automated…but it’s going to create new work. It’s going to create new jobs.” He pointed out that AI is already creating demand for electricians, construction workers, and network technicians to support the infrastructure behind “AI factories.”

Huang also pushed back on fears around AI’s opacity. “There’s a lot less mystery,” he said. “It’s hard to build something you don’t understand.” A major step forward, in his view, is AI’s ability to conduct real research. He described giving his own AI assistants papers and documents, then asking questions after they’ve read them. “It would become an expert in that research area,” he said.

He even fact-checks across models: “I use Perplexity, I use Gemini Pro, I use ChatGPT. I ask them to do the same research, and then compare the answers. That’s how I reduce fake information.”

Beyond automation, Huang emphasized AI as a force for democratization. “AI is the great equalizer,” he said. “A young person connected to AI…becomes incredibly good.” Whether it’s programming, research, or medicine, “everybody just became better because they have the benefit of AI.”

He closed on a hopeful note about America’s future: “We’re reindustrializing the United States…building AI factories. We need trade schools. We need skilled labor. And we need to celebrate this new industry.”

Britain and France agreed to a first-ever nuclear weapons pact

The New York Times, July 11, 2025

Prime Minister Keir Starmer of Britain and President Emmanuel Macron of France yesterday announced a new defense relationship. For the first time, they pledged to have their countries’ nuclear arsenals work together in the event of an attack against an ally in Europe.

Europe has long been reliant on the U.S. for nuclear protection, but Trump is increasingly talking about the need for Europe to defend itself against potential adversaries. The deal comes as the two countries attempt to shore up E.U. support for defending Ukraine against Russian aggression amid wavering U.S. support.

Migration: The leaders also announced an agreement that could reduce the number of migrants attempting to cross the English Channel in small boats from northern France.

Bank Negara Malaysia cuts key interest rate to 2.75pc amid external uncertainties

Malay Mail, July 9, 2025

KUALA LUMPUR, July 9 — Bank Negara Malaysia has cut the Overnight Policy Rate (OPR) by 25 basis points to 2.75 per cent to support economic growth amid global uncertainty.

The ceiling and floor rates of the OPR corridor were adjusted accordingly to 3.00 per cent and 2.50 per cent respectively.

The central bank said the move is a pre-emptive step to preserve the country's steady growth path as inflation remains moderate.

"While the domestic economy is on a strong footing, uncertainties surrounding external developments could affect Malaysia’s growth prospects," Bank Negara said in a statement.

Malaysia’s economy is expected to remain supported by resilient domestic demand, sustained investment activity, and steady household spending.

Favourable labour market conditions and the progress of public and private multi-year projects will continue to drive growth in the coming quarters.

Bank Negara noted that inflation averaged 1.4 per cent for headline and 1.9 per cent for core between January and May, and is expected to stay moderate throughout 2025.

Risks to the growth outlook remain tilted to the downside, due to softer global trade, weaker sentiment, and lower commodity output.

The ringgit’s performance, according to the central bank, will be shaped largely by external developments despite ongoing domestic structural reforms.

The Monetary Policy Committee (MPC) said it will stay vigilant and continue to assess risks to growth and inflation going forward.

IOI Properties Group a potential two-bagger, says DBS Group Research

Edge Singapore, July 8, 2025

IOI Properties Group, with stated plans to unlock value by listing two REITs based on its growing portfolio of investment properties worth more than RM20 billion, is potentially a two-bagger stock, according to Tabitha Foo and Derek Tan of DBS Group Research, the latest in a growing list of brokerages paying closer attention to this counter.

In their unrated July 7 note, Foo and Tan deem this counter to have a potential 12-month target of RM2.43, on an "as is" basis.

However, if the REITs spin-offs do come into fruition, they estimate a potential 67% upside to RM4.05.

Key assets held by IOIPG in its home market Malaysia includes the flagship IOI City Mall in Putrajaya, described as not just the largest mall in the country but also among the largest in southeast Asia, with net lettable area to grow from 2.5 million sq ft to 3.5 million sq ft when the next phase is done.

Here in Singapore, the key asset is the recently completed IOI Central Boulevard Towers, a Grade A office with over 1.29 million sq ft of office space, with leasing commitment already above 85%.

Most recently, IOIPG announced plans to buy out partner City Developments at their joint venture South Beach.

According to Foo and Tan, market concerns over IOIPG's high gearing seem unwarranted. As of March, net gearing was 0.75x, up from 0.7x as at end June 2024. Upon completion of the 51% stake in South Beach from CDL, the gearing is seen to increase further to 0.94x, assuming the deal is fully debt-funded.

"We believe this is temporary, given the group's plans to unlock value from its existing assets, deleverage, and recycle capital towards higher return opportunities," say Foo and Tan.

"The monetisation of stabilised assets via REITs would not only help reduce gearing but also provide the group with greater financial flexibility to deploy its development capabilities – a core competency for IOIPG.

"This would support a robust pipeline for its REITs and underpin a sustainable capital recycling strategy to drive long-term growth," the analysts say.

For the Malaysia REIT, expected in the middle of 2026, they expect IOIPG to kick off with an initial portfolio of IOI City Mall, Putrajaya, and IOI Mall Damansara – along with its office assets and hotels.

Assuming a REIT target gearing of 30% and a stake of 30% in the REIT to be retained by IOIPG, the REIT is worth RM0.93 per IOIPG share, of which around RM0.65 cash per share could be extracted as cash proceeds through the listing, after taking into account the 30% strategic stake.

Foo and Tan believe a portion of the proceeds could be distributed to unitholders via a special dividend or a dividend in specie.

If used to pare down debt, this could reduce net gearing to 0.79x from 0.94x, assuming the South Beach acquisition is fully debt-funded.

As for the Singapore REIT, even at 0.8x P/NAV, the deal could unlock a further value of RM 0.87 to 2.13 per share.

"The potential injection of either South Beach or ICBT, or both, into a Singapore REIT could enable IOIPG to unlock meaningful value from its portfolio," the analysts suggest.

Assuming a REIT structure with 35% gearing and IOIPG retaining a 30% strategic stake, the DBS analysts estimate the REIT could be valued at RM0.87-2.13 per IOIPG share.

From this, the company could realise approximately RM0.61 to 1.49 per share in cash proceeds from the listing.

If these proceeds are used to pare down debt, IOIPG could reduce its net gearing to a more comfortable level of 0.45-0.65x.

According to the DBS analysts, the potential pipeline for the Singapore REIT includes an upcoming hotel W Singapore and Shenton House, which is now privately held by IOIPG's CEO Lee Yeow Seng.

Using sum-of-the-parts calculation, Foo and Tan figure that there is an upside of 23% to 67% with the Malaysia and Singapore REIT spinoffs, compared to IOIPG on an “as-is” basis, which has a fair value of RM2.43 per share.

"The market has yet to price in the Malaysia and Singapore REIT spinoffs, where substantial value can be unlocked. We estimate a fair valuation ranging from RM2.99 to 4.05, implying an upside of 23% to 67% to our fair values, if these strategies are successfully executed upon," state the analysts.

"Developers are entering a new era of growth, which extends beyond strategically landbanking new sites. The focus is also shifting towards leveraging and extracting value from existing portfolios.

"The proposed REIT spinoff(s) will not only showcase the potential of IOIPG’s quality assets, but also the group’s clear commitment to unlocking value, which should help to narrow the gap between its share price and NAV," state Foo and Tan.

IOIPG shares, quoted on the Bursa, ended July 8 at RM2.13, up 2.4% for the day.

My take: This DBS report may be the trigger for IOIPG share price to spike up in past two days. It essentially spells out what Hong Leong analyst and myself have been talking about the potentials of the REIT listings.

DBS analysts think that the Malaysia REIT is worth RM0.93 per IOIPG share, or RM5.1 billion. I think this has undervalued the IOIPG assets in Malaysia. The shopping malls and office towers of IOIPG in Malaysia are contributing about RM350 million of pretax profit a year to the group, so at 7% yield, these assets are worth at least RM5 billion when injected into a REIT.

Furthermore, IOI City Mall Phase 2 is going through the first round of rental revision in 2H 2025, so potential rental income is set to increase further in 2026. On the other hand, IOIPG’s prime office tower, IOI City Tower 1 in Putrajaya (NLA of 484k sf), which was completed in 2015 and had been vacant for several years, has been progressively filled since 2024 and is now fully committed. At say RM6.00 psf/month, IOI City Tower 1 will contribute gross rental income of RM35 million a year to the group and may itself be worth RM350 million when injected into the Malaysia REIT.

As for the Singapore REIT, DBS analysts estimate a value of RM0.61 per share for South Beach Complex or SGD1.0 billion, which is fair compared to the acquisition price of SGD886m for IOIPG to take over the remaining 51% stakes.

For IOI Central Boulevard, DBS analysts has given a value of RM0.88 per share or SGD1.47 billion. Added back the SGD3bn debts at IOICB, the asset is valued at SGD4.47bn. That is higher than my own estimation of SGD4.35bn valuation for 100% occupancy at average rental rate of SGD13.00 psf, 3.0% interest rate, 25% gearing and a listing yield of 3.2%.

Incidentally, DBS’s price target of RM4.05 for IOIPG (for the case when both the Malaysia and Singapore REIT plans are executed well) is the same as the price target of Hong Leong research.

The DBS report came right after the announcement by IOIPG to acquire the remaining 51% stakes in South Beach and to set up the Malaysia and Singapore REITs. This shows that foreign funds are starting to take notice of this property giant that has deep values.

I started recommending IOIPG in July 2024, when I had obviously gone ahead of others and the market, somehow a bit too early in the recommendation. Now after one year, the stock is only being re-rated up. The same goes for YTL & YTL Power which I first recommended in April-May 2022, but these two stocks only started moving up some 15 months later in 2H 2023. But patience always pays off eventually.

With the share price breaking up RM2.20 level yesterday, I expect it to challenge the previous high of RM2.50 in coming months.

Net short positions on YTL Power increased by 700k shares to 31.1m shares at close Thursday, while net short positions on YTL increased by 1.3m shares to 23.9m shares.