IGB REIT’s 4Q19 core net profit of RM75.3m (-5.7% QoQ, -0.3% YoY) brought the FY19 sum to RM315.9m (+4.0% YoY). This was within both ours and consensus estimates. Dividend of 2.19 sen per unit was declared. The overall improvement was supported by higher rental income, thanks to positive rental reversion. We maintain our forecast, BUY call and TP of RM2.17. We continue to favour IGB REIT for its concentrated prime assets, sustainable tenant sales growths and positive rental reversions.

Within expectations. 4Q19 core net profit of RM75.3m (-5.7% QoQ, -0.3% YoY) brought the FY19 sum to RM315.9m (+4.0% YoY). The results were within both ours and consensus expectations, accounting for 95.3% and 98%, respectively. .

Dividend. Declared 4Q19 DPU of 2.19 sen per unit, going ex on the 5th Feb 2020. This brings FY19 DPU to 9.16 sen (FY18: 9.19 sen), in line with our expectations.

QoQ. Top-line growth was up by 2.4% to RM139.6m mainly due to higher other income (+94.7%) comprising of revenue from contracts with customers. Net property income (NPI) was lowered by 4.6% due to higher maintenance expenses in the current quarter (+73.5%). As a result, core net profit decreased by 5.7% to RM75.3m.

YoY. Revenue was a tad higher by 1.8% against the corresponding 4Q18 owing to higher gross rental income (+1.6%) in current quarter given positive rental reversion. NPI remained flat at RM96.1m (-0.4%) due to higher maintenance expenses (+57.2% given a one off expenses of escalator maintenance at The Gardens Mall). In turn, core net profit stayed flat at RM75.3m (-0.3%).

YTD. FY19 revenue of RM552.1m increased by 3.1% vs the corresponding period FY18. The improvement was mainly supported by higher rental income contribution, resulting from positive rental reversion. In turn, net profit of RM315.9m showed a 4.0% increment, which was supported by both higher gross rental income (+5.3%) as well as flattish operating expenses (+2.6%).

High occupancy. Both properties; Mid Valley Megamall and The Gardens Mall continue to operate with high occupancy rates of close to 100%, thanks to its strategic prime location.

Outlook. We believe both of IGB REIT’s assets; Mid Valley Megamall and The Gardens Mall will continue to perform well, as they are defensive from the challenging retail environment in Klang Valley due to its concentrated prime assets with high traffic, sustainable positive tenant sales growth and rental reversions. Not resting on its laurels, IGB REIT is determined to push ahead with its: (i) Asset Enhancement Initiatives, and (ii) bringing on creative activities and exclusive events by working with tenants as well as corporate partners - to raise on-ground promotional activities for shoppers and visitors. Separately, the potential pipeline asset, Mid Valley Southkey Megamall in Johor has started operation in April 2019 in all floors thus bringing its committed occupancy rate over 85%; the asset is expected to be injected into IGB REIT earliest in 2022.

Forecast. Maintain as the Results Were Inline.

Maintain BUY, TP: RM2.17. We maintain BUY at TP RM2.17 based on targeted yield of 4.9% which is derived from 2-year historical average yield spread between IGB REIT and 10-year MGS yield. We favour IGB REIT for its concentration of prime retail assets with sustainable earnings and DPU.

Source: Hong Leong Investment Bank Research - 29 Jan 2020