• IGBREIT is our sector pick for a retail recovery play. We expect firmer earnings in 2H21 and a 30% growth in 2022E on higher visitations to its malls after the widespread administration of the Covid-19 vaccine
   
• Occupancy remains intact at >90% with low exit risks. 50% of NLA space previously leased to Robinsons has been taken up by Isetan
   
• Maintain BUY with an unchanged TP of RM1.82. At a 5.5% 2022E DPU yield, valuation looks attractive

A Recovery Play

IGBREIT is our preferred recovery play for its speedy earnings recovery (compared to peers) from the 2QCY20 lows. Its quick earnings recovery is attributed to the everpopular shopping malls Mid Valley Megamall (MVM) and The Gardens Mall (TGM), proactive management and lower rental assistance extended to tenants due to its already competitive rental compared to the other premium malls in Klang Valley. The malls’ occupancy remained strong with MVM being almost fully occupied and TGM’s occupancy standing in the mid-90%. Notably, 50% of the space vacated by Robinson has been taken up by Isetan, indicating a robust demand for space in the mall. 44% and 35% of the NLA space in MVM and TGM are set to expire in 2021, and management expects renewal to be a non-issue.

Earnings recovery should gain momentum in 2H21; 2022E earnings should exceed pre-Covid 19 level

We are positive on IGBREIT’s earnings outlook. Barring any unforeseen setbacks in the rollout of the phased Covid-19 immunization program starting end-February, we expect IGBREIT’s earnings to gradually recover to the pre-Covid 19 level. While we still expect 2021E earnings to be lower than the pre-Covid-19 level, we are optimistic on 2022E – we forecast a 30% EPU growth in 2022E, as we expect no further rental assistance and shopping activities to return to normal following the easing of restrictions.

Maintain BUY Rating With An Unchanged Target Price of RM1.82

Overall, we maintain our BUY rating on IGBREIT with an unchanged DDM-derived target price of RM1.82. IGBREIT is our preferred pick among the retail-centric MREITs as we like its premium assets, robust balance sheet and strong recovery momentum. At a 5.5% 2022E DPU yield, IGBREIT’s valuation looks attractive.

Source: Affin Hwang Research - 17 Feb 2021