Results

4Q13 core PAT rose 13.2% yoy to RM53.1m, with YTD net profit of RM206.9m making up 101% and 94% of HLIB and consensus estimates respectively.

Deviations

None

DPU

1.78 sen DPU was declared in 4Q13, bringing YTD DPU to 7.04 sen, or 103% of our 6.82 sen FY13E DPU forecast.

Highlights

Healthy topline growth in 4Q. Total revenue enjoyed 11.0% yoy and 5.9% qoq growth in 4Q13, thanks to gross rental income which rose 11.7% yoy and 8.3% qoq in 4Q13.

Slight NPI margin compression. However, NPI margin declined 2.0% yoy and 4.9% qoq, owing to a surge in maintenance expenses which rose 18.5% yoy and 16.7% qoq.

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 after rolling over our numbers.

Rating

HOLD

Previously, the yield spread between the CMMT and IGB REIT was 150 bps but as we had postulated earlier, the yield convergence occurred as the decline in share price of CMMT proved to be greater than IGB REIT. This comes as no surprise to us given the similar nature of both their asset portfolios, i.e. offering investors a pure exposure to Malaysian retail assets in choice locations with strong population catchment. IGB REIT now trades at 6.6% yield, vs. 6.5% for CMMT.

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).

Given the current weak external environment and sector headwinds, we are now applying 7.0% cap rate to both CMMT and IGB REIT (previously 6.0%).

Our TP is now reduced from RM1.36 to RM1.10, and we downgrade IGB REIT to HOLD.

Source: Hong Leong Investment Bank Research - 29 Jan 2014