IGB REIT reported a solid set of results - 2018 net property income (NPI) grew by 3.4% to RM386m on higher revenue (+2.1%) and lower operating costs (-1.3%); realised net profit, however, grew by a mere 0.1% due to the recognition of a one-time write-back in the prior year. 2018 DPU came in within our expectations at 9.19 sen (-1% yoy). Overall, the results are within our expectations but a tad below street forecasts. Maintain HOLD with an unchanged DDM-derived price target of RM1.74: at a 5.3% 2019E dividend yield, IGB REIT’s valuation is within its historical trading range and looks fair.

A Firm 2018; Revenue Grew by 2% on Higher Rental, Within Expectations

IGB REIT reported a solid set of results - 2018 NPI grew by 3.4% on the back of higher revenue (+2.1%) and lower operating costs (-1.3%). Its 2018 realised net profit, however, grew by a mere 0.1% to RM303.8m due to the absence of a one-time write-back of interest booked in 3Q17. IGB REIT continues to enjoy high occupancy of c.99%; a positive rental reversion has translated to a commendable 2.6% growth in gross rental income. Overall, the results are within our expectations but a tad below consensus expectations (2% short). IGB REIT declared an income distribution of 2.28 sen for 4Q18, bringing the full-year distribution to 9.19 sen (-1% yoy).

Sequentially, Realised Net Profit Slipped by 0.4%

Sequentially, IGB REIT’s 4Q18 realised net profit fell by 0.4% qoq to RM75.5m due to higher property expenses (+9.6% qoq), despite a seasonally higher revenue of RM137.2m (+2.6%). In tandem, management has declared a lower 4Q18 DPU of 2.28 sen (3Q18: 2.29 sen).

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

We tweaked our 2019-20E EPS forecasts by -0.2% after incorporating the 2018 financial statements while maintaining our HOLD rating and DDMderived price target of RM1.74. While we like IGB REIT 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 5.3%, valuation is within its historical trading range (though at a slight premium to peers) and looks fair considering its first-class assets and solid management track record. Upside risks include higher-than-expected retail spending; downside risks include unexpected hike(s) in the interest rate.

Source: Affin Hwang Research - 24 Jan 2019