Investment Highlights

• We maintain BUY on IGB REIT with a higher fair value (FV) of RM1.95/unit (from RM1.92/unit previously) based on our revised rolled-forward dividend discount model (DDM) and a neutral 3-star ESG rating (Exhibits 6 & 7).

• The FV implies a FY24F distribution yield of 5.7%, at parity to its 5-year median.

• We make no changes to our earnings forecasts as IGB REIT’s FY23 distributable income of RM386mil was within our expectation, just 1% above our FY23F earnings albeit 7% above street’s.

• In FY23, IGB REIT’s gross revenue improved 9% YoY while net property income (NPI) climbed 7% YoY. The improvement was driven by stronger rental income from favourable FY23 rental reversions in Mid Valley Megamall (MVM) and The Gardens Mall (TGM) (Exhibits 2 & 3). Additionally, higher tenant sales in FY23 increased the variable portion of rents tied to the level of retail store business transactions.

• YoY, lower NPI margin in FY23 was mainly attributed to higher utilities expenses from an increased electricity tariff as well as higher reimbursement cost.

• On QoQ comparison, IGB REIT’s 4QFY23 gross revenue expanded 6% while NPI grew 4%. These were driven by higher gross monthly rental income in TGM, which rose to RM15.59 psf in 4QFY23 from RM15.43 psf in 3QFY23.

• In 4QFY23, occupancy rates for MVM and TGM were close to 100% (Exhibits 2 & 3). We are confident of IGB REIT’s ability to maintain high occupancy rates due to the strategic location of its malls.

• IGBREIT has completed the renewal of a majority of leases expiring in FY23 at a rate of 4%-6%, supported by an improvement in retail sales.

• IGB REIT adopts a proactive approach to rental renewals, typically finalising 9-12 months ahead of lease expirations. Supported by continued positive sales momentum, we are confident that the majority of leases set to expire in FY24F (Exhibit 4) will be successfully renewed in 1HFY24, with positive rental reversions close to pre-pandemic levels of 0 4%-6%.

• We maintain BUY on IGB REIT with a higher fair value (FV) of RM1.95/unit (from RM1.92/unit previously) based on our revised rolled-forward dividend discount model (DDM) and a neutral 3-star ESG rating (Exhibits 6 & 7).

• The FV implies a FY24F distribution yield of 5.7%, at parity to its 5-year median.

• We make no changes to our earnings forecasts as IGB REIT’s FY23 distributable income of RM386mil was within our expectation, just 1% above our FY23F earnings albeit 7% above street’s.

• In FY23, IGB REIT’s gross revenue improved 9% YoY while net property income (NPI) climbed 7% YoY. The improvement was driven by stronger rental income from favourable FY23 rental reversions in Mid Valley Megamall (MVM) and The Gardens Mall (TGM) (Exhibits 2 & 3). Additionally, higher tenant sales in FY23 increased the variable portion of rents tied to the level of retail store business transactions.

• YoY, lower NPI margin in FY23 was mainly attributed to higher utilities expenses from an increased electricity tariff as well as higher reimbursement cost.

• On QoQ comparison, IGB REIT’s 4QFY23 gross revenue expanded 6% while NPI grew 4%. These were driven by higher gross monthly rental income in TGM, which rose to RM15.59 psf in 4QFY23 from RM15.43 psf in 3QFY23.

• In 4QFY23, occupancy rates for MVM and TGM were close to 100% (Exhibits 2 & 3). We are confident of IGB REIT’s ability to maintain high occupancy rates due to the strategic location of its malls.

• IGBREIT has completed the renewal of a majority of leases expiring in FY23 at a rate of 4%-6%, supported by an improvement in retail sales.

• IGB REIT adopts a proactive approach to rental renewals, typically finalising 9-12 months ahead of lease expirations. Supported by continued positive sales momentum, we are confident that the majority of leases set to expire in FY24F (Exhibit 4) will be successfully renewed in 1HFY24, with positive rental reversions close to pre-pandemic levels of 0 4%-6%.

Source: AmInvest Research - 31 Jan 2024