Results

2Q14 core PAT rose 15.3% yoy to RM58.5m, with YTD net profit of RM116.2m making up 53% of HLIB and consensus estimates.

Deviations

Due to stronger than expected rental reversions, which led to 9.2% yoy increase in gross rental income. IGB REIT does not provide breakdown of revenue and NPI by property.

DPU

1.96 sen DPU was declared in 2Q14, bringing YTD DPU to 3.89 sen, or 54% of our 7.23 sen FY13E DPU forecast.

Highlights

Healthy topline growth in 2Q. Total revenue increased 7.9% yoy in 2Q, thanks to gross rental income which increased 9.2% yoy in the quarter.

NPI margin up yoy. 2Q14 NPI margin rose 2.2ppts yoy due to improved cost efficiencies. IGB REIT made provisions for >100% hike in DBKL assessment rates in 2Q, but we believe it will likely writeback those provisions in 2H, similar to other REITs with assets in KL.

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 increase our FY14-15 forecast by 3.4-4.5% to factor in stronger rental reversions.

Rating

HOLD

IGB REIT now trades at 6.3% yield vs. 6.1% for CMMT, vis-a-vis a 150bps yield spread late last year. This is in line with our expectations 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.

Given that both REITs now trade at a similar yield level, we prefer IGBREIT for better scope of rental reversion as 33% of its NLA is up for renewal this year, vs. just 15% for CMMT.

Valuation

We raise our TP marginally from RM1.10 to RM1.14 after raising our EPU and DPU forecasts. The target DY was unchanged at 7.0%, same as CMMT

Source: Hong Leong Investment Bank Research - 25 Jul 2014