IGB Berhad’s (IGB) 3QFY21 losses widened to RM58.7m, primarily due to weak performance from all business units and one-off tax expense of RM56.2m net of deferred tax in relation to the disposal of investment properties to IGB Commercial REIT. Stripping out one-off items, the Group’s YTD net loss RM15.7m is deemed within our expectations as we expect earnings to recover in the subsequent quarters due to the easing of pandemic-induced movement restrictions. An interim dividend of 12.0sen (10 sen cash and 2 sen dividend-in-specie) per share was declared, a positive surprise after monetization of its offices and land known as 18 Blackfriars Road in the UK this year (which could see a one-off gain of c.RM190m in 4QFY21). All told, we adjust our FY21 upwards by c.6x to RM127.8m to account for the asset sale and tax expense and maintain our Outperform call with TP of RM2.70, pegged at c.65% discount to our RNAV estimates as we still believe in the long-term attractiveness of its assets.

• Group revenue in 3QFY21 dropped 28% YoY due to lower contributions from all business units. Correspondingly, Group pre-tax profit decreased by 85% YoY to RM11.1m. Group loss after tax during the current quarter is mainly due to a one-off tax expense of RM56.2m net of deferred tax in relation to the disposal of investment properties to IGB Commercial REIT. Revenue from retail assets (via IGB REIT) dropped 26.7% YoY to RM95.8m with net property income and pre-tax profit correspondingly reduced by 42.8% YoY and 49.9% YoY to RM55.9m and RM38.5m respectively. This is due to higher rental support provided to tenants as well as higher allowance for impairment of trade receivables in 3QFY21 arising from the MCOs and NRP. Meanwhile, revenue from The Mall, Mid Valley Southkey in Johor Bahru almost halved YoY to RM16.9m, with a pre-tax loss of RM17.6m recorded

• Property Investment – Commercial division contributed gross revenue of RM40.4m (-7% YoY) with average occupancy rates above 70% and average rental rates at RM6.20psf. Office occupancies have remained relatively stable and we understand that the average rate of IGB Commercial REIT’s ten buildings is 71.4%. Going forward, we believe that rental support for eligible tenants to remain minimal and rental reversion is envisaged to be flat for the fourth quarter of 2021. Separately, Hotel revenue dropped 69% YoY in 3QFY21 to RM5.1m with average occupancy rates across all hotels in the Group remaining low due to travel restrictions under the MCO.

Source: PublicInvest Research - 29 Nov 2021