IGBREIT’s 1Q18 realised net profit came in at RM82m (+9% yoy) on lower cost (-9%) and higher revenue (+2%). Management surprised with a 1Q18 DPU of 2.48 sen, potentially signalling a possible change from its bi-annual distribution practise. Overall, the results are within market and our expectations. Maintain HOLD. While we like IGBREIT for its first-class assets and strong balance sheet, the weak retail mall market and possible rate hike(s) may weigh on investor sentiment.

1Q18 Realised Net Profit Grew by 9.1% on Lower Cost, Broadly Inline

IGBREIT reported a strong set of results – 1Q18 realised net profit grew by 9.1% to RM82.3m on higher revenue (+2.3% yoy) and lower operating expenses (-8.8% yoy). 1Q18 NPI margin hit a record high of 74.9% (vs. 69-73% quarterly NPI margin between 1Q15-4Q17) due to lower operating expenses. We expect its NPI margin to normalise in the coming quarters on higher operating expenses (ie. manpower, marketing, admin cost and building upgrades). Overall, we deem the results as inline – 1Q18 realised net profit accounted for 26-28% of street and our full year forecasts.

Management Declared a Surprise Quarterly Distribution

IGBREIT positively surprised with a quarterly distribution of 2.48 sen (nil in 1Q17), signalling a possible change from its bi-annual distribution practise.

Sequentially, Realised Profit Was 6.6% Stronger

Sequentially, 1Q18 realised net profit grew by 6.6% yoy on higher revenue (+1.8% qoq) and lower operating expenses (-12.5% qoq). The REIT’s 1Q18 operating expenses of RM34.3m was well below the 5-year average of RM36.2-37.8m per quarter; we expect cost to pick up in the coming quarters.

Maintain HOLD With An Unchanged TP of RM1.63

We maintain our HOLD rating and DDM-derived price target of RM1.63. We like IGBREIT for its first-class assets, strong balance sheet and exciting asset acquisition outlook. However, the weak retail mall market and possible rate hike(s) may weigh on investor sentiment. At 5.9% 2018E DPU yield,

valuation is within historical trading range and looks fair. Key re-rating catalyst is the opening of Southkey Megamall (a JV project between IGB Corp and a Johor-based company) on 8th August 2018. Upside risk: a change in market expectations from rising rates to a rate cut; downside risk is further deterioration in retail mall market.

Source: Affin Hwang Research - 24 Apr 2018