Results

• 1HFY16 revenue of RM199.33m was translated into normalised net profit of RM138.77m, came in within our expectation, accounting for 50.6% and 50.3% of HLIB and consensus forecasts.

Deviations

• None.

Dividends

• DPU of 4.41 sen (1HFY15: 4.47 sen) is declared and going ex on 5th Aug 2016, representing a payout ratio of about 97.5% and an annualized yield of 5.35%.

Highlights

• Higher revenue and property income yoy recorded in 1H on the back of higher rental rates and post asset enhancement initiatives with additional 40k sq ft of NLA at the mezzanine floor since 3Q last year.

• However, both revenue and NPI were lower qoq given the more selective consumer spending behaviour in 2Q after a relatively stronger spending 1Q16. Financial results were also partially affected the LNG explosion event which impacted outlet sales while incurring rental rebates.

• Occupancy rate remained close to 100% while NPI margin was stable at 70%. The renewals for lease expi ry in 2016 for both Mid Valley Megamall and The Gardens Mall are largely completed with healthy reversion of circa 5% per annum.

• Moving towards 2H, we foresee improved sentiments and stronger local consumption resulting from OPR cut, normalization of GST effect and higher disposable income.

Risks

• High portfolio concentration, with only two malls.

• Highly sensitive to a downturn in consumer spending.

Forecasts

• We raise DPU payout assumption to 97% from 95% previously, hence FY16 forecasted DPU is raised to 8.6 sen.

Rating

HOLD, TP: RM1.67

• Positives –

• High quality assets at prime location with stable income.

• Diversification of malls i.e. prime retail mall (The Gardens Mall) and semi-prime retail (MidValley Megamall).

• Construction of the flagship mall at SouthKey by its parent company, potential to be injected into IGBREIT in longer term.

• Negatives –

• Lack of diversified assets and catalyst in near term.

Valuation

• Maintain HOLD recommendation with unchanged TP of RM1.67 based on projected FY17 DPU.
• Targeted yield at 5.5% based on historical average yield spread of IGB REIT and 10-year MGS.

Source: Hong Leong Investment Bank Research - 27 Jul 2016