Results

3Q13 core PAT of RM53.8m took 9M net profit to 75% and 71% of HLIB and consensus estimates respectively.

Deviations

None

DPU

1.83 sen DPU was declared in 3Q13, bringing YTD DPU to 5.26 sen, or 77% of our 6.82 sen FY13E DPU forecast.

Highlights

Topline growth flattish in 3Q. Total revenue was relatively flat qoq (+1% qoq) in 3Q, as a slight decline in gross rental income (-1.0% qoq) was offset by a 7.2% qoq increased in other income.

However, NPI grew 4.4% qoq in 3Q, thanks to effective cost control measures. Property expenses declined 5.9% qoq in 3Q.

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

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

Rating

BUY

We still like IGB REIT as it trades at 7.2% DY for FY14, which is very attractive vs. 5.7% for CMMT. We opine that the 150 bps yield spread is somewhat unjustified given the similar nature of both their asset portfolios, i.e. offering investors a pure exposure to Malaysian retail assets.

Given that IGB REIT trades at a higher yield than CMMT and Pavilion REIT, it remains our top pick in the M-REIT sector.

Valuation

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

Share price showed some weakness due to concerns over the potential Fed tapering and MGS yields, but sentiment has since stabilized, which supports our positive outlook on IGB REIT.

We keep our TP unchanged at RM1.36 (5.0% target DY), and maintain our BUY call on the REIT.

Source: Hong Leong Investment Bank Research - 25 Oct 2013