2QFY22 core net profit of RM83.5m (-2.2% QoQ, +88.4% YoY) lifted 1HFY22 sum to RM168.9m (+91.8%). The results were broadly in line with ours and consensus expectations. DPS of 5.0 sen was declared in 1HFY22. The overall YoY improvement in 1HFY22 was mainly due to improving retail sales arising from better shopper footfall with the transition to endemicity. Both properties, Midvalley Megamall and The Gardens Mall’s occupancy remained robust, at >99% while gearing stood at 23%. We continue to like IGB REIT due to its prime asset location, which enable it to capitalize on strong recovery in local footfall. We keep our forecasts as results were inline. Maintain BUY call with an unchanged TP of RM1.85 based on targeted yield of 5.5% derived from 5-year historical average yield spread between IGB REIT and 10-year MGS yield.

Broadly inline. 2QFY22 core net profit of RM83.5m (-2.2% QoQ, +88.4% YoY) lifted 1HFY22 sum to RM168.9m (+91.8% YoY). The results were broadly in line with ours and consensus expectations at 55%.

Dividend. Declared 2QFY22 DPS of 2.45 sen, bringing 1HFY22 to 4.96 sen (SPLY: 1.33 sen and 2.68 sen, respectively).

QoQ. Revenue remained flat at RM133.8m while core net profit decreased marginally to RM83.5m (-2.2%), attributable to the increase in total operating expenses, mainly arising from the rise in utilities expense (+25.9%).

YoY/YTD. Top line rose strongly (57.5% YoY, 45.1% YTD) following the lifting of movement restrictions, given the transition to endemicity; in comparison SPLY was marred by MCO2.0 and 3.0. Total operating expenses did not increase in the same quantum except for utility costs (+46.8% YoY, +47.2% YTD). As a result, core net profit rose to RM83.5m (+88.4%) and RM168.9m (+91.8%).

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

Outlook. IGB REIT’s prospects continued to be bright as the lifting of restrictions and reopening of international borders will elevate shoppers traffic in Midvalley Megamall and The Gardens Mall, which will in turn underpin retail sales. Additionally, the tapering of rental assistance to tenants as well as resilient occupancy rates and improving monthly rental income of both malls (due to their prime location) will support 2HFY22 performance.

Forecast. We maintain our forecasts as results were broadly in line.

Maintain BUY, TP: RM1.85. Our TP is based on FY23 DPU on targeted yield of 5.5% which is derived from 5-year historical average yield spread between IGB REIT and 10-year MGS yield. We continue to like IGB REIT due to (i) its prime asset location to capitalise on the strong recovery in domestic footfall, (ii) robust occupancy rates and (iii) monthly rental income returning to pre-pandemic levels.

Source: Hong Leong Investment Bank Research - 28 Jul 2022