Results

• Within expectations. 3QFY17 normalised net profit of RM74.1m (qoq: +9.5%; yoy: +7.8%) translated into 9MFY17 normalized net profit of RM217.2m (+4.7% yoy). The results are within our but slightly below consensus expectations, accounting for 74.7% of our and 70.5% of consensus estimates.

Deviations

• None.

Dividends

• None as it is usually declared during 2Q and 4Q.

Highlights

• YoY/ QoQ: Normalized net profit of RM74.1m increased (qoq: +9.5%; yoy: +7.8%) on the back of positive rental reversion rate and lower property operating expenses.

• YTD : Normalized net profit increased by 4.7% mainly due to positive rental reversion.

• Occupancy rate remained close to 100% while yoy NPI margin slightly improved to 73% (from 71%). The renewals for lease expiry in 2017 for both Mid Valley Megamall (MVM) and The Gardens Mall (TGM) are largely completed with healthy reversion of mid-single digit.

• Outlook: We expect both MVM and TGM to continue register positive tenant sales growth in 4Q17 as we expect retail sales to be boosted by higher tourist arrivals and recent Budget measures to raise household disposable income.

Risks

• High portfolio concentration, with only two malls.

• Highly sensitive to a downturn in consumer spending.

Forecasts

• Unchanged.

Rating

BUY ↔ , TP: RM1.84 ↔

• We believe IGB REIT is shielded from current challenging retail environment in Klang Valley due to prime location and high traffic enjoyed by both MVM and TGM. Moreover, prudent management and healthy balance sheet further enhance attractiveness of the stock.

Valuation

• Maintain BUY recommendation with unchanged TP of RM1.84 based on targeted yield at 5.4%, which is 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 - 09 Nov 2017