Results

• Within expectations. 4Q17 normalised net profit of RM77.1m (QoQ: +4.1%; YoY: +9.7%) translated into 12M17 normalized net profit of RM294.3m (+5.9% YoY). The results are within both ours and consensus expectations, accounting for 100.9% and 100.3% respectively.

Deviations

• None.

Dividends

• FY17 DPU of 9.28 sen (FY16: 8.71 sen) was declared, representing a payout ratio of 95%.

Highlights

• YoY/ QoQ: Normalized net profit of RM77.1m increased (QoQ: +4.1%; YoY: +9.7%) on the back of positive rental reversion rate but was partially offset by higher property operating expenses.
• FY17: Normalized net profit increased by 5.9% mainly due to positive rental reversion but was partially offset by higher property operating expenses.
• Occupancy rate: Overall occupancy rate remained healthy being close to 100% while YoY NPI margin slightly declined to 71% (from 73%).
• Inorganic growth: MidValley Southkey Megamall (MSM) is expected to start operating in August CY18 and the potential injection of this asset into IGB REIT will increase total NLA by 60%. However, injection of MSM will only happen at the earliest in CY21 after the one tenancy cycle (3 years) to allow stabilization in rental and occupancy rates.
• Outlook: We expect both MVM and TGM to continue register positive tenant sales growth and rental reversion rate given its high quality assets at prime location with strong footfalls

Risks

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

Forecasts

• Unchanged.

Rating

BUY ↔ , TP: RM1.78 ↔

• 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 enhances the attractiveness of the stock.

Valuation

• Maintain BUY recommendation with unchanged TP of RM1.78 based on targeted yield at 5.6%.

Source: Hong Leong Investment Bank Research - 24 Jan 2018