• IGB REIT’s (IGBREIT) 4Q20 realised net profit fell by 6.2% qoq to RM72.1m on higher provision for trade receivables, which offset a 12.8% revenue gain
• Nevertheless, the results beat market and our expectations due to the reversal of over-provision for rental support
• Upgrade to BUY with a higher target price of RM1.82 as we turn more positive on 2022 retail earnings outlook in anticipation of strong earnings recovery following widespread distribution of Covid-19 vaccine leading to looser SOPs.

4Q20 Realised Net Profit Fell by 6.2% Qoq to RM72.1m

IGBREIT’s 4Q20 realised net profit dipped by 6.2% qoq to RM72.1m. The dip was mainly due to higher allowance for impairment of trade receivables which more than offset higher revenue of RM147.5m (+12.8% qoq). The revenue gain was due to the reversal of overprovision for rental support in the prior quarters. Tracking the lower earnings, IGBREIT declared a lower 4Q20 DPU of 2.08 sen, a 1.4% decrease qoq.

FY20 Realised Net Profit Fell 25% to RM236.8m, Above Expectations

Cumulatively, IGBREIT’s FY20 realised net profit fell 25% yoy to RM236.8m due to the rental assistance programme, lower car park income and higher allowance for impairment of trade receivables. Revenue fell 15.7% yoy to RM456.2m while NPI margin was lower by 4.2ppt to 68.1%. Overall, the earnings were above street and our expectations – making up 110% of the street and 112% of our full-year earnings forecasts. The beat was due to better-than-expected revenue from reversal of over-provisioning for rental support.

Upgrade to BUY With a Higher TP of RM1.82

Overall, we upgrade IGBREIT to BUY with a higher 10-year DDM-derived target price of RM1.82 after (i) incorporating 2020 financial statements; (ii) tweaking our FY21E forecast lower to incorporate higher rental assistance due to implementation of MCO 2.0 and (iii) strong earnings recovery in 2022 with no further rental assistance. We turn more positive on its 2022 earnings outlook in anticipation of higher availability and widespread distribution of Covid-19 vaccine, leading to more lenient SOPs, allowance of inter-state travel and mass gathering. IGBREIT is one of our preferred picks among the retail-centric MREITs as we like its premium assets, strong balance sheet and recovery momentum post 2Q20 low. At 5.8% 2022E DPU yield, valuations looks attractive.

Source: Affin Hwang Research - 26 Jan 2021