Results

• FY15 revenue of RM489.2m was translated into normalised net profit of RM254m, accounting for 97.5% and 96.0% of HLIB and consensus forecasts, respectively.

Deviations

• Largely in-line.

Dividends

• Declared 2nd Interim dividend of 3.72 sen (FY14: 3.90 sen), with full year dividend totalling 8.19 sen (FY14: 7.79 sen), representing a yield of 5.9%.

Highlights

• Total revenue for FY15 increased by +5.9% yoy due to higher contribution from rental income (+7.3%), on the back of higher rental rates and post asset enhancement initiatives such as the additional 40k sq ft of NLA after a full revamp of the 3rd floor has been completed.

• Overall NPI margin improved in FY15 despite marginally lower 4QFY15 due to higher property upgrade cost.

• With about 45% of NLA expi ring in 2016, we expect moderate rental reversion in the region of 5-7% and tenant retention of above 90% given its prime location.

• For 2016, management guided for a challenging outlook for retail sector given the subdued consumer sentiment and will focus on asset enhancement initiatives to sustain the yield.

Risks

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

Forecasts

• Incorporating the updated numbers and information, we raise our FY16 DPU assumption by 0.7 sen after factoring in adjustment in distribution.

Rating

HOLD , TP: RM1.39

• Positives –
  • High quality assets at prime location.
  • Diversification of malls i.e. prime retail mall (The Gardens) and semi-prime retail (MidValley Megamall).
  • Construction of MidVelley SouthKey by the parent company, potential to be injected into IGBREIT in long term.  
• Negatives –
  • Lack of diversified assets and catalyst in near term.

Valuation

• Maintain HOLD recommendation on the equity with a higher TP of RM1.39 post adjustment in DPU assumption.
• Targeted yield at 6.0% based on historical average yield spread of IGB REIT and 10-year MGS.

Source: Hong Leong Investment Bank Research - 27 Jan 2016