Results

• Reported 9MFY16 revenue of RM381.7m, which translated to normalised net profit of RM207.55m. We consider the results within expectations, accounting for 75.6% and 75.3% of HLIB and consensus forecasts.

Deviations

• None.

Dividends

• None as dividend is usually paid on semi-annual basis.

Highlights

• Yoy, higher revenue (+4%) and net income (+5.6%) were recorded on the back of higher rental rates, riding on improvement in consumer spending compared to post-GST implementation last year.

• Qoq, net income was up 4.3% with improvement in store sales after a more selective consumer spending in 2Q. Notably, tenant sales in 2Q were also partially affected by LNG explosion event.

• YTD reported higher revenue (+3.8%) and net profit (+3.3%) on the back of higher rental rates coming from the additional 40k sq ft of NLA at the mezzanine floor since 3Q last year as well as improved store sales.

• NPI margin was stable at 71% while occupancy rate remained close to 100%. We also understand that the renewals for lease expiry in 2016 for both Mid Valley Megamall and The Gardens Mall are largely completed with healthy reversion of circa 5% per annum.

Risks

• High portfolio concentration, with only two malls.

• Highly sensitive to a downturn in consumer spending.

Forecasts

• Unchanged

Rating

HOLD ↔, TP: RM1.67 ↔

• We like IGB REIT for its high quality assets at prime location with highly stable income and strong footfalls which are poised for sustainable organic growth. However, we see no near term catalyst with the possible injection of the flagship mall at SouthKey, Johor by its parent company by 2022.

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 - 26 Oct 2016