IGB REIT reported a stable set of numbers – 9M19 realised net profit grew by 5.4% yoy to RM240.6m on higher revenue (+3.5% yoy) and improved NPI margin. Nonetheless, 9M19 distributable income grew by a muted 1.5% yoy due to lower management fees payable in units. Overall, the results were within market and our expectations. We maintain our HOLD rating with an unchanged DDM-derived target price of RM2.02. At a 5.0% 2020E yield, its valuation looks fair considering the solid earnings outlook, first-class assets, strong balance sheet and exciting asset-acquisition outlook.

Higher 9M19 Profit on Revenue Growth

IGB REIT’s 9M19 realised net profit grew by 5.4% yoy to RM240.6m as the malls continues to enjoy higher rental income, driven by higher base rents as well as an increase in turnover rental. A reconfiguration exercise involving 5% of NLA in Mid Valley (previously tenanted to AEON) has helped lift revenue, we believe. NPI margin improved to 73.4% (+0.7 ppt) on higher revenue, which outpaced cost inflation. The change in the management fee payment structure (a combination of units and cash) from 100% payment in units previously, has dampened the growth in 9M19 distributable income (+1.5% yoy). This has translated to a relatively muted 9M19 DPU growth 0.9% to 6.97 sen. Overall, the results were within market and our expectations - 9M19 realised net profit made up 76% of consensus and our full-year forecasts.

Sequentially Higher 3Q19 Realised Net Profit

3Q19 realised net profit grew by 2.4% qoq to RM79.8m on higher revenue (+1% qoq) and lower property expenses (-2.3% qoq). In tandem, management has declared a higher DPU of 2.31 sen (+2.2% qoq).

Maintain HOLD With An Unchanged TP of RM2.02

Maintain HOLD and DDM-derived TP of RM2.02. At a 2020E dividend yield of 5.0%, valuation looks fair considering its solid earnings outlook, first-class assets, strong balance sheet and exciting asset-acquisition outlook. Upside risks include an unexpected cut in interest rates and further compression in government bond yields; a downside risk is lowerthan-expected retail spending.

Source: Affin Hwang Research - 24 Oct 2019