Results

1Q14 core PAT rose 17.1% yoy to RM57.7m, making up 28% and 26% of HLIB and consensus estimates respectively.

Deviations

None

DPU

1.93 sen DPU was declared in 1Q14, making up 28% of our 6.82 sen FY13E DPU forecast.

Highlights

Healthy topline growth in 1Q. Total revenue increased 12.6% yoy in 1Q13, thanks to gross rental income which also increased 12.6% yoy in the quarter.

NPI margin flat yoy. 1Q14 NPI margin contracted marginally (-0.3 ppts yoy) due to rising cost pressures, including utilities expenses which increased 23% yoy due to tariff hike in electricity and >100% yoy rise in quit rent and assessment as IGB REIT made provisions for the substantial hike in DBKL assessment rates.

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

Maintained.

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. 6.1% for CMMT. Although we have a HOLD call on both, we would regard IGB REIT as more attractive between the two, as it trades at a higher yield than CMMT but offers REIT investors a similar exposure.

Valuation

Maintain target price at RM1.10 (with target DY unchanged at 7.0%).

Source: Hong Leong Investment Bank Research - 2 May 2014