Results

• Reported FY16 revenue of RM507.3m which translated into normalised net profit of RM277.8m, accounting for 101.2% and 101.1% of HLIB and consensus forecasts, respectively.

Deviations

• None.

Dividends

• Declared a final DPU of 4.30 sen (2HFY15: 3.72 sen), going ex on 8 Feb 2017. FY16 DPU amounted to 8.71 sen (FY15: 8.19 sen), representing a yield of 5%.

Highlights

• YoY: Higher revenue (+4.1%) was recorded on the back of higher rental rates, riding on improvement in consumer spending. Net income grew higher +32.3% thanks to lower utilities and property upgrade expenses as well as financing cost due to high base in FY15.
• QoQ: Net income was up 2.2% attributable to lower utilities and property upgrade expenses despite flattish gross rental revenue (-0.1%).
• FY16: Higher revenue (+3.8%) was recorded on the back of higher rental reversion and additional 40k sq ft of NLA at the mezzanine floor since 3Q16. Net profit (+9.4%) grew at a higher pace due to lower utilities expenses and property upgrade expenses as well as financing cost.
• NPI margin improved to 73% thanks to lower operating expenses 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

• We incorporate latest FY16 numbers and assumptions with no material change in our forecast.

Rating

HOLD ↔, TP: RM1.69 ↑

• 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 as the possible injection of the flagship mall at SouthKey, Johor by its parent company only by 2022.

Valuation

• TP is raised to RM1.69 (from RM1.61) based on projected FY17 DPU with lower targeted yield of 5.4% (from 5.7%), 1SD below historical average yield spread between IGB REIT and 10-year MGS considering its highly stable assets and sustainability of yield.

Source: Hong Leong Investment Bank Research - 26 Jan 2017