Results

1Q13 core PAT rose 5.2% yoy to RM49.3m, making up 24.0% and 24.8% of HLIB and consensus estimates respectively.

Deviations

None

DPU

1.41 sen DPU was declared in 1Q13, or 20.7% of our 6.8 sen FY13E DPU forecast.

Highlights

Qoq decline in rental income… Total revenue declined 1.5% qoq to RM101.4m in 1Q13 , driven by 0.5% qoq decline in gross rental income. This was mainly attributed to lower percentage rent in 1Q13.

… but NPI rose 2.7% qoq, thanks to sequential NPI margin expansion, driven by lower advertising and promotion expenses in 1Q13.

As for future acquisitions, we opine that the Sponsor pipeline is long-dated and limited, as we expect the Southkey development in Johor to take more than five years to be ready for injection into IGB REIT.

Risks

• High portfolio concentration, with only two malls; highly sensitive to a downturn in consumer spending .

Forecasts

We forecast EPU growth of 6.4-7.5% for FY13-14 with the main engine of growth to come from The Gardens Mall, with 53% of its NLA up for renewal in FY13.

Rating

We still think that IGB REIT has a leg up to go, and is likely to play catch-up with Pavilion REIT in terms of DY. As such, IGB REIT remains our top pick in the MREIT sector..

Valuation

We value IGB REIT based net DY, with the closest peers being CMMT and Pavilion REIT (“pure play” specialists in the Malaysian retail scene).

In our view, IGB REIT should continue trading at a premium to Sunway REIT, which has nearly 40% of its NPI derived from non-retail assets.

Should IGB REIT successfully play catch-up with Pavilion REIT and trade at 4.5% net DY (FY13E), this would translate into a TP of RM1.52. Maintain BUY.

Source: Hong Leong Investment Bank Research - 29 May 2013