IGB Berhad (IGB) registered a lower net loss in 2QFY21 of RM5.3m (+64.7% YoY, +49.2% QoQ) which came in below our expectations, bringing YTD net loss to RM13.2m. With the resurgence and high number of positive Covid-19 cases and the continued imposition by the Government of the various forms of Movement Control Order (MCO) in the country, hopes of an early recovery in the local economy have been dampened. On lockdown restrictions, we expect the near term to remain challenging and as such cut our FY21-23 earnings by 52%/21%/6% on higher losses especially in its hospitality assets, and to account for lower rent revenue from its retail and commercial assets. We understand that the Group has taken steps and will continue to take necessary action to mitigate the impact by reducing operating expenses as well as assessing the various government assistance measures which may be applicable to the Group. All told, we maintain our Outperform call with TP of RM2.70 however, pegged at c.65% discount to our RNAV estimates as we still believe in the long-term attractiveness of its assets.

• Group revenue in 2QFY21 rose 15% YoY to RM193.7m mainly due to higher contributions from all business divisions and as such Group recorded pre-tax profit of RM24.5m compared to pre-tax loss of RM7.9m a year ago. As for its retail assets i.e. IGB REIT, the segment reported revenue and net property income of RM84.9m (+37% YoY) and RM63.1m (+67% YoY) respectively. The mall, Mid Valley Southkey, Johor Bahru contributed revenue of RM17.5m (+23% YoY) to the Property Investment-Retail division but still recorded pre-tax loss of RM4.2m (2QFY20: -RM17.0m) Property Investment – Commercial division contributed gross revenue of RM41.7m or an increase of about 2% YoY. We understand that average occupancy rates for 2QFY21 were above 70% with average rental rates at RM6.00psf. Hotel revenue rose by 69% YoY to RM10.5m in 2QFY21 from RM6.2m but average occupancy rates across all hotels in the Group remain low due to travel restrictions under the current MCO imposed by the Government. YTD, net losses registered by the segment were RM32.0m, from RM30.7m net loss a year ago.

Source: PublicInvest Research - 30 Aug 2021