Investment Highlights

• We maintain our forecasts and fair value of RM2.03 for IGB REIT, with no adjustment for ESG based on a 3-star rating as appraised by us (Exhibit 2). Our valuation is based on a target yield of 4.5% over its FY22F distributable income. Maintain BUY.

• IGB REIT’s 1QFY21 distributable income of RM48.6mil (-35% YoY) accounted for 17% of our full-year forecasts and consensus’ full-year estimates. We consider the results within expectations given our expectations of a weaker 1Q due to the MCO 2.0. Moving forward, we anticipate rental rates to recover in stages, underpinned by stronger recovery in footfall at the malls and consumer spending, as the country continues to carry out the immunization programme, and is targeting to achieve herd immunity by year-end.

• IGB REIT’s 1QFY21 revenue of RM99.4mil declined by 20% YoY (vs. RM125mil in 1QFY20), mainly due to rental support provided to tenants and lower car park income. Meanwhile, its net property income (NPI) and distributable income fell by 29% to RM62.4mil YoY and 35% YoY to RM48.6mil respectively due to higher allowance for impairment of trade receivables arising from the Covid-19 pandemic and the various MCOs.

• Likewise, the company’s revenue deteriorated by 33% QoQ as compared to RM147.5mil in 4QFY20, mainly due to the rental support provided to tenants and lower car park income. Its NPI and distributable income tumbled by 33% and 38% QoQ respectively on higher allowances recorded as a result of the impairment of trade receivables arising from the Covid-19 pandemic and the various MCOs.

• Reflecting the lower results, IGB REIT’s proposed distribution income declined by 31% YoY to 1.33 sen per unit for 1QFY21 from 1.94 sen per unit in 1QFY20. We are maintaining our FY21–23F distribution projections of 8.3 sen, 9.1 sen and 9.5 sen respectively, which translate into yields of 4.7%, 5.2% and 5.3%.

• IGB REIT’s debt-to-asset ratio remains at 23%, which is well below the regulatory threshold of 60% (temporary increased limit from 50% up to 31 December 2022 as part of the relief measure implemented by the Securities Commission in light of Covid-19). At the current level, we believe IGB REIT still has ample headroom to gear up for future acquisitions.

• At our valuation of RM2.03, IGB REIT offers a potential upside of 15%. We like IGB REIT as we believe its long-term outlook remains positive given its strategically located assets in the heart of Klang Valley and more balanced footfall profile (i.e. only moderate exposure to tourists), enabling it to capitalise on the recovery in domestic consumption while waiting for the borders to reopen. We favour IGB REIT as a recovery play with reasonable returns with dividend yields of more than 5% for FY22F and beyond amidst the current low interest rate environment.

Source: AmInvest Research - 27 Apr 2021