IGB Commercial REIT’s 4Q21 core net profit of RM18.7m brought the FY21 sum (6 weeks results) to RM21.5m. The quarterly results were within our expectations. Dividend of 1.147 sen per unit was declared. We expect FY22 to remain stable, backed by minimal rental support provided led by economic recovery. We maintain our forecasts, reiterate BUY with unchanged TP of RM0.79, based on targeted yield 6.3% on FY22 DPU.

Within expectations. 4Q21 core net profit of RM18.7m brought the FY21 sum (i.e. 6 weeks results: 17 Sep–31 Dec 2021) to RM21.5m. The quarter results were within our expectations at 24% of FY21 forecast, assuming that the REIT had been in existence for the full year.

Dividend. Declared DPU of 1.147 sen per unit, going ex on 11 Feb 2022.

Results commentary. Based on 6 weeks financial results (17 Sep–31 Dec), gross revenue and net property income (NPI) came in at RM53.4m and RM36.6m respectively. Core profit after tax (PAT) stood at RM21.5m. No comparative figures are available as IGB Commercial REIT has only been recently listed on 20 Sep 2021.

Occupancy and gearing. IGB Commercial REIT’s average portfolio occupancy fell slightly to 73% (FY20: 76%). Most prominent improvement would be on Southpoint Properties whereby occupancy improved to 83% vs. FY20: 49%. In contrast the most noticeable drop in occupancy was seen in Centrepoint North (from FY20: 91% to 78%) and Boulevard Properties (from FY20: 92% to 69%). Meanwhile gearing stood at 26%.

Outlook. IGB Commercial REIT will continue its efforts on maintaining the physical conditions of the portfolio including assurance of indoor air quality while embarking on intense marketing, supported by attractive, flexible rental packages to boost occupancies. Following the economic recovery, we foresee rental support to remain minimal. Moreover, as we understand for its KL Suburban properties, c.70-75% of workforce has return back to work, thus painting a promising picture of recovery.

Forecast. We maintain our forecasts as quarterly results were within expectations.

Maintain BUY, TP: RM0.79. We maintain our BUY call with unchanged TP of RM0.79. Our TP is based on FY22 DPU on targeted yield of 6.3%. Our targeted yield of 6.3% is derived from ascribing a 150bp premium to the targeted yield of 5-year historical average yield spread of pure office REITs in Malaysia (consisting Sentral REIT & UOA REIT). In our opinion, the premium is fair considering that IGB Commercial REIT’s properties are more strategically located vs peers, and it is the largest standalone office REIT, with market value asset of RM3.2bn.

Source: Hong Leong Investment Bank Research - 27 Jan 2022