9M16 realised net income (RNI) of RM207.5m met both our and market expectations at 79% and 75%, respectively. We make no changes to our earnings forecasts of RM261.3-266.3m. Maintain MARKET PERFORM with an unchanged TP of RM1.66, based on a target gross/net yield of 5.2%/4.8% on FY17E GDPS/NDPS of 8.6 sen/7.8 sen, on a +1.6ppt to our 10-year MGS target of 3.60%.

9M16 realised net income (RNI) of RM207.5m came in within both our and consensus expectations at 79% and 75%, respectively. No dividends as expected.

Results Highlights. QoQ, top line growth was flattish (+1%), but lower operating cost (-4%), mostly from lower utilities and maintenance expense helped improve RNI margins by +1.7ppt to 54.6%, increasing RNI by 4%. YoY-Ytd, RNI was up by 3%, mostly on higher rental income which increased GRI by 4%, and on the back of higher operating cost (+6%) mostly from maintenance expense, and higher financing cost (+5%), while RNI margins remained flattish. Note that IGBREIT does not provide segmental breakdown for MV and TGM.

Outlook. We do not expect any acquisitions in the near-term, despite IGBREIT’s low gearing level of 0.24x, as there is no visible acquisition pipeline from its parent. FY16 will see 29% and 45% of Mid Valley (MV) and The Gardens Mall’s (TGM) NLAs up for expiry, respectively, whereas FY17 will see 35% and 40% of MV and TGM’s NLAs up for expiry. We have anticipated rental reversions of 15% for both assets for FY16-17, which is similar to FY14 reversion rates. We opine that the group should be able to achieve higher base rental reversions as their mall rental rates have a higher component of turnover rent.

Reiterate MARKET PERFORM call with unchanged TP of RM1.66. We maintain our FY16-17E earnings and TP of RM1.66, based on an unchanged target gross/net yield of 5.2%/4.8% on FY17E GDPS/NDPS of 8.6 sen/7.8 sen, on a +1.6ppt to our 10-year MGS target of 3.60%. 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 near-term re-rating catalyst for IGBREIT. Hence, we maintain our MARKET PERFORM call.

Risks to our call include bond yield expansions or compressions and weaker-than-expected rental reversions.

Source: Kenanga Research - 26 Oct 2016