IGB REIT’s 4Q21 core net profit of RM73.6m (+91.0% QoQ, +2.1% YoY) brought the FY21 sum to RM200.1m (-15.5% YoY). This was within both our and consensus estimates. Dividend of 2.17 sen per unit was declared. The overall annual fall in profit was mainly due to lower rental contribution (-14.4% YoY), which resulted from the higher rental support given to tenants as well as lower car park income. Maintain our forecasts, reiterate BUY with unchanged TP of RM1.75, based on targeted yield 4.8% on FY22 DPU.

Within expectations. 4Q21 core net profit of RM73.6m (+91.0% QoQ, +2.1% YoY) brought FY21’s sum to RM200.1m (-15.5% YoY). The results were within both our and consensus expectations, forming 102% and 97% of respective full-year forecasts.

Dividend. Declared 4Q21 DPU of 2.17 sen per unit, going ex on 11 Feb 2022. This brings FY21 DPU to 6.03 sen (FY20: 6.75 sen).

QoQ. Top-line growth was up 24.6% to RM119.4m driven by higher rental income (+19.9%; on lesser rental support given) and other income (+38.2%; better tenant sales). Net property income (NPI) improved (+67.5%) due to decrease in operating expenses (-35.5%) mainly from lower reimbursement and upgrading costs (-75.4%). Hence, core net profit of RM73.6m was attained (+91.0%).

YoY. Fall in revenue (-19.1%) was mainly due to higher rental support provided. Despite that, NPI was flat (+0.6%) backed by lower operating expenses (-52.8%) thanks to lower reimbursement and upgrading costs (-80.9%). As a result, core net profit improved by 2.1%.

FY21. Revenue of RM399.5m showed a decrease of 14.1% YoY due to lower rental income contribution (-14.4%) from higher rental support given to tenants and lower car park income during MCOs and NRP Phases. Separately, total operating expenses fell (-16.2%) mainly due to lower utilities expenses (-24.4%) and reimbursement costs. As such, NPI declined by 13.1% while borrowing costs remained flat (-0.3%). Overall, core net profit of RM200.1m (-15.5%) was achieved.

Occupancy and gearing. Both properties, Midvalley Megamall and The Gardens Mall’s occupancy remains stable, at >99%. Gearing stood at 23%.

Outlook. We remain confident on IGB REIT recovery, backed by the malls’ large exposure to domestic shoppers (>90%), and its prominent location. Furthermore, 4QFY21 sets a promising tone of resiliency going into FY22.

Forecast. Maintain forecasts as the results were in line.

Maintain BUY, TP: RM1.75. We maintain BUY with unchanged TP of RM1.75. Our TP is based on FY22 DPU on targeted yield of 4.8% which is derived from 2-year historical average yield spread between IGB REIT and 10-year MGS yield. We continue to favour IGB REIT for its prime asset location and reliant on domestic footfall, which we believe would experience a quicker recovery among other retail REITs (unlike Pavilion and Suria KLCC, which had a higher exposure to international tourists).

Source: Hong Leong Investment Bank Research - 27 Jan 2022