Period

3Q15/9M15

Actual vs. Expectations

9M15’s realised net income (RNI) of RM200.9m came in within expectations, making up 77% of consensus’estimate and 80% of ours.

Dividends

None, as expected.

Key Results Highlights

QoQ, topline and bottom-line were mostly flattish. GRI was flat at RM121.0m due to lower turnover rent as IGBREIT has a high portion of turnover rent (13% of GRI). However, higher operating cost lowered NPI margins by 1.0ppt to 70% due to higher reimbursement cost, along with higher financing cost (+1%) which dragged RNI down by 1% to RM65.1m.

YoY, topline growth was strong, increasing by 7% to RM367.8m on positive rental reversions in FY14 and 9M15 for both MV and TGM. The leap in topline growth is more apparent YoY as the bulk of FY14 rental renewals occurred in 4Q14. NPI margins improved by 2.1ppt to 71% as operating costs were flat. Additionally, higher interest income (+14%), and flattish financing cost improved RNI margins to 55% (from 52%), increasing RNI by 14% to RM200.9m.

Outlook

FY16 will see 29% and 45% of MV and TGM’s NLAs up for expiry, respectively. We have anticipated rental reversions of 15% for both MV and TGM for FY16E which is similar to FY14 reversion rates.

We believe IGBREIT is unlikely to make any acquisitions in the near-term, despite their low gearing level of 0.24x, as we see no visible injectable assets from its parent while there appears to be no newsflow on third party asset acquisitions.

Change to Forecasts

We make no changes to FY15-16E earnings. Our FY15-16E NDPUs are relatively unchanged at 7.4-7.5 sen, implying 5.6-5.7% net yields.

Rating

Maintain MARKET PERFORM

Valuation

Maintain TP of RM1.38 based on an unchanged target gross yield of 6.0% on FY16E GDPS of 8.3 sen (net: 7.5 sen). Our target gross yield is based on a +2.0ppt spread to our target 10-year MGS of 4.0%.

Downside risks appear limited as our estimates are conservative, and we have already accounted for weakness from the high turnover rent component previously. However, we do not foresee any nearterm re-rating catalyst for IGBREIT.

Risks to Our Call

Bond yield expansion or compression vs. our target 10-year MGS. Weaker-than-expected rental reversions.

Source: Kenanga Research - 28 Oct 2015