Period

1Q16

Actual vs. Expectations

1Q16 realised net income (RNI) of RM72.8m met our and consensus’ expectations at 28% and 26%, respectively.

Dividends

None, as expected.

Key Results Highlights

QoQ, topline grew by 8%, on positive rental reversion and stable occupancy rates. Meanwhile, NPI margin improved by 4.5ppt on the back of: (i) lower operating cost (-7%) on lower property upgrade costs and (ii) lower financing costs (-34%) as lower interest costs were accrued in 1Q16. This led to an increase in RNI by 37%.

YoY-YTD, 1Q16 topline growth increased by 5% due the above-mentioned reasons. Meanwhile, NPI margin was reduced marginally by 1ppt, due to higher operating costs (+6%) on higher reimbursement cost and maintenance expenses. Hence, RNI was up by 4%.

Note that IGBREIT no longer provides segmental breakdown for MV and TGM.

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 assets for FY16E, which is similar to FY14 reversion rates. The group is able to achieve higher base rental reversions as their mall rental rates have a higher proponent of turnover rent.

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 news flow on third party asset acquisitions.

Change to Forecasts

Unchanged.

Our FY16E-17E NDPU stands at 7.7-7.8 sen, implying 5.1-5.2% net yield.

Rating

Maintain MARKET PERFORM

Valuation

We maintain our TP at RM1.53, based on an unchanged gross yield of 5.6% on FY16E GDPS/NDPS of 8.5 sen/7.7 sen. Our target gross yield is based on a +1.8ppt spread to our target 10- year MGS of 3.8%.

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 - 27 Apr 2016