Results

9MFY14  core  net  profit  of  RM176.4m  (+14.63%  yoy)  came in  within  our  expectation  but  above  consensus,  accounting for  77.2%  and  79.7%  of  HLIB  and  consensus  full  year estimates, respectively.

Deviations

• Largely in-line.

Dividends

Declared  distri bution inc ome per unit (DPU) of 2.01  sen per share  (3QFY13:  1.83  sen).  Included  in  the  DPU  are normalised  profit  of  RM60.1m  and  non-cash  item  arising from  Manager  fee  payable  in  unit  of  RM7.8m   bringing  the   YTD DPU to 5.9 sen.

Highlights 

Cumulative total revenue increased  +8.14% yoy mainly due to higher  than expected  rental  reversion  in  2Q14.

NPI  for  the  current  quarter  increased  +8.78%  yoy  due  to lower  total  opeRating cost  as  a  res ult  of  reduction  in  other expenses.  QoQ  comparis on,  utilities  expenses  reduced  by -3.36% while quit rent and assessment reduced by  -49.79%. We believe the significant drop in quit rent and assessment is due higher than expected quit rent and assessment in the previous  quarter  as  DBKL  increased  the  property  value  of the port folio.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD, TP: RM1.23

Positives  –  

• Construction  of MidVelley SouthK ey by the parent company (IGB Corp), potential to be injected into the IGBREIT in long term.  
• Pure  retail  play  with  pricing  power  and  potentially  higher rental income from rental reversion.
• Diversific ation of malls (i.e. prime retail mall (The Gardens) and semi-prime  retail (MidValley Megamall))

Negatives  –  

• Implementation of GST in April 2015 will subdued consumer sentiment  and  hence  lower  bargaining  power  of management  company for  rental reversion.
• No catalyst in near term.

Valuation

• Maintain  HOLD  recommendation  on  the  stock   with  TP  of RM1.23.  We  maintain  5.7%  targeted  yield  based  on historical  average  yield  spread  between  IGBREIT  and  7-year MGS.

Source: Hong Leong Investment Bank Research - 30 Oct 2014