IGB REIT’s 4Q20 core net profit of RM72.1m (-6.2% QoQ, -4.2% YoY) brought the FY20 sum to RM236.8m (-25.0% YoY). This was above both ours and consensus estimates. Dividend of 2.08 sen per unit was declared. The overall fall in profit was mainly due to lower rental contribution (-24.2% YoY), which resulted from the rental support given to tenants as well as lower car park income. Despite the results beating estimates, we cut our FY21-22 forecasts by 7% to account for the risk of lower revenue contribution due to MCO2.0 and the current high Covid count. Post earnings adjustments, our TP fall to RM1.88 (from RM2.01), based on targeted yield 4.5% on FY21 DPU. Maintain BUY.

Above expectations. 4Q20 core net profit of RM72.1m (-6.2% QoQ, -4.2% YoY) brought the FY20 sum to RM236.8m (-25.0% YoY). The results were above both ours and consensus expectations, accounting for 111% and 110%, respectively. The positive deviation was due to higher than expected revenue generated.

Dividend. Declared 4Q20 DPU of 2.08 sen per unit, going ex on 9 Feb 2021. This brings FY20 DPU to 6.75 sen (FY19: 9.16 sen).

QoQ. Top-line growth was up 12.8% to RM147.5m mainly due to lesser rental support given and better tenant sales. Net property income (NPI) was lower by 4.8% due to higher operating expenses in the current quarter (+65.1%). In turn, core net profit decreased by 6.2% to RM72.1m.

YoY. Revenue improved (+5.7%) due to better rental income (+10.8%) but slightly offset by lower other income (-7.9%). NPI fell slightly (-3.1%), due to higher opex (+25.0%) and lower interest income (-4.9%). As a result, core net profit fell by 4.2%.

YTD. Revenue of RM465.2m showed a decrease of 15.7% due to lower rental income contribution (-24.2%), which resulted from the rental support given to tenants and lower car park income especially during 2Q. However, this was slightly cushioned by the increase of other income (+16.4%). That said, lower interest income (-13.2%) also caused the fall in NPI (-20.6%) and led to core net profit of RM236.8m (-25.0%).

High occupancy. IGB REIT’s occupancy remains high, at more than 90%. We understand Isetan at The Gardens Mall has already taken up a sizable portion of NLA that was left behind by Robinsons.

Outlook. With the ongoing MCO (scheduled to end on 4 Feb) alongside rising Covid- 19 cases, this may put a dent on Chinese New Year sales performance YoY. We gathered that IGB REIT is open to provide rental assistance to its tenants that needed support on a case-to-case basis. We believe IGB REIT’s low exposure to tourist (less than 10% exposure to international tourists) and its prominent location will aid in surviving this challenging environment.

Forecast. Although results were above expectations, we are cutting our FY21-FY22 forecasts by 7% to account for the risk of lower revenue contribution as we foresee lower footfall during MCO 2.0 (13 Jan to 4 Feb) along with the high Covid count.

Maintain BUY, TP: RM1.88. Post earnings adjustments, our TP fall to RM1.88 (from RM2.01). Our TP is based on FY21 DPU on targeted yield of 4.5% which is derived from 2-year historical average yield spread between IGB REIT and 10-year MGS yield. Maintain BUY. We continue to favour IGB REIT for its robust asset quality in prominent location with low tourist exposure that we believe would drive a quick recovery post MCO.

Source: Hong Leong Investment Bank Research - 26 Jan 2021