IGBREIT reported a modest set of results - 9M18 net property income (NPI) grew by 4% on higher revenue (+2%) and lower operating costs; realised net profit however grew by a mere 1% due to the recognition of a one-time write back in the prior year. Overall, the results are within market and our expectations. Maintain HOLD with an unchanged DDMderived price target of RM1.74. At a 5.5% 2019E dividend yield, IGB REIT’s valuation looks fair, within its historical trading range and comparable to peers.

9M18 Realised Net Profit Grew by 1% Yoy, Within Expectations

IGBREIT reported a modest set of results – 9M18 realised net profit grew by 1% to RM228m on higher net property income (+4%), which more than offset the absence of a one-time write back of interest booked in in 3Q17. Overall, the results are broadly within market and our expectations – 9M18 realised net profit accounted for 73% of street and 76% of our full year forecasts.

Sequentially, Realised Net Profit Grew by 8%, DPU Up by 7%

Sequentially, IGBREIT’s 3Q18 realised net profit grew by 8% qoq to RM75.8m on the back of a higher revenue (+4.5% qoq), attributable to the higher rental income driven by stronger tenants sales in conjunction with the tax holidays during the June 2018 to August 2018 period. In tandem, management has declared a higher 3Q18 DPU of 2.15 sen (2Q18: 1.99 sen).

Maintain HOLD With An Unchanged DDM-derived TP of RM1.74

We maintain our earnings forecasts, HOLD rating and DDM-derived price target of RM1.74. While we like IGBREIT for its first-class assets, strong balance sheet and exciting asset acquisition outlook (i.e. Southkey Megamall in Johor Bahru). The positives are, in our view, largely priced-in. At a 2019E dividend yield of 5.5%, its valuation is within its historical trading range and comparable to peers’, looks fair. Upside risks include higher-than-expected retail spending; downside risks include hike(s) in the interest rate.

Source: Affin Hwang Research - 25 Oct 2018