1H17 realised net income (RNI) of RM143.1m met market (48%) and our expectation (50%). 1H17 GDPU was also in line (48%). We make no changes to FY17-18E NPs of RM286.7-303.9m. Maintain OUTPERFORM and TP of RM1.89 on FY18E numbers, and an unchanged spread of +1.2ppt to our MGS yield target of 4.00%.

1H17 realised net income (RNI) of RM143.1m came in well within consensus (48%) and our expectations (50%). 1H17 GDPU of 4.38 sen was declared, which included a 0.08 sen non-taxable portion. This is on track to meet our FY17E target (48%) of 9.2 sen, implying 5.3% gross yield (4.8% net yield).

Results Highlights. QoQ, 2Q17 RNI fell 10.2% QoQ mainly on the back of lower gross rental income (GRI) and lower RNI margins (-3.2ppt to 53.2%), possibly on lower turnover rent as IGBREIT has a high turnover portion (c.13% of GRI) and 1Q tends to benefit from festive seasonal spending, similar to the past two years. YoY-Ytd, RNI was up by 3.1% on: (i) higher rental income which increased GRI by 2.0%, and (ii) lower financing cost (-3.7%), allowing RNI margin to improve slightly by 0.6ppt. Group gearing remains unchanged at 0.24x. Note that IGBREIT does not provide segmental breakdown for MV and TGM.

Outlook. FY17E 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 FY17-18, which is similar to historical reversion rates. We reckon the group should be able to achieve higher base rental reversions as their mall rental rates have a higher component of turnover rent. We do not expect any acquisitions in the near-term, as there is no visible acquisition pipeline. Note that we make no changes to FY17-18E NPs of RM287-304m.

Maintain OUTPERFORM and TP of RM1.89. We maintain our TP based on FY18E GDPS/NDPS of 9.7 sen/8.8 sen, and on an unchanged +1.2ppt spread to our 10-year MGS yield target of 4.00%. We maintain our OUTPERFORM call as at current levels. IGBREIT is commanding decent gross yields of 5.6% vs. other predominantly retailbased MREITs’ average gross yields of 5.5%, with attractive 14% total returns. We are comfortable with our OUTPERFORM call as it is backed by IGBREIT’s prime asset positioning and asset stability that have continuously garnered strong occupancy (>99%) on the back of double digit reversions, which should provide a flight for safety for investors.

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

Source: Kenanga Research - 3 Aug 2017