FY17 realised net income (RNI) of RM303.4m came within market (103%), and marginally above our (106%), expectations. We believe the slight deviation from ours is due to low borrowing cost in 3Q17. FY17 GDPU of 9.76 sen is also above (106%). We make no changes to FY18E CNP of RM303.9m and introduce FY19E CNP of RM312.2m. Maintain OUTPERFORM and TP of RM1.87, on an unchanged spread of +1.2ppt to our MGS yield target of 4.00%.

FY17 realised net income (RNI) of RM303.4m came in within consensus (103%) but slightly above our expectation (106%). Top-line came in within ours at 98%, but we believe the slight deviation in our FY17E CNP was due to lower borrowing cost, especially in 3Q17 on a write-back of step-up interest from the fixed rate term loan. 4Q17 GDPU of 4.90 sen was declared, which included a 0.11 sen non-taxable portion, bringing FY17 GDPU to 9.76 sen. This was also above our FY17E target (106%) of 9.23 sen, implying 5.8% yield.

Results Highlights. YoY-Ytd, 4Q17 top-line was up by 3.5%, likely on positive rental reversions and year-end activities. However, RNI was up by a solid 9.2% on better RNI margins (+3.0ppt) due to lower financing cost on a write-back of step-up interest from the fixed-rate term loan which was settled in 3Q17. Group gearing was maintained at 0.23x.

QoQ, top-line was up 3.7% likely due to similar reasons mentioned above. However, RNI declined by 7.2% on; (i) lower NPI margins (- 2.0ppt) likely on higher cost for year-end activities, and (ii) higher financing cost (+137%) due to the write-back in 3Q17. 4Q17 also saw a fair value gain of RM40m from both assets. Note that IGBREIT does not provide segmental breakdown for MV and TGM.

Outlook. We expect minimal capex of RM15-25m on minor refurbishments and upkeep of both malls. FY18 will see 37% and 18% of MV and TGM’s NLAs up for expiry, while FY19 will see 23% and 44% of MV and TGM’s NLAs up for expiry. We believe the group should be able to achieve higher base rental reversions vs. peers as their mall rental rates have a higher component of turnover rent. We do not expect any acquisitions in the near-term. Southkey Mall in Johor is slated for completion in 2H18, but we expect the acquisition to only post one reversion cycle, likely by FY21.

Maintain FY18E CNP of RM303.9m and introduce FY19E CNP of RM312.2m. We anticipate rental reversions of 15-9% for both assets for FY18-19, as we are more conservative going in to FY19. Our FY18-19E GDPU of 9.7-9.9 sen (NDPU of 8.7-8.9 sen), suggest gross yields of 6.0-6.1% (net yields of 5.4-5.5%).

Maintain OUTPERFORM and TP of RM1.87. We maintain our TP based on FY18E GDPS/NDPS of 9.7 sen/8.7 sen, and on an unchanged +1.2ppt spread to our 10-year MGS yield target of 4.00%. We maintain our OUTPERFORM call at current levels, as IGBREIT is commanding attractive gross yield of 6.0% vs. other predominantly retail-based MREITs’ average gross yields of 5.7%, on the back of consistently strong earnings. Going forward, we are comfortable with our call, as the REIT is backed by prime asset positioning and asset stability coupled with sustained strong occupancy (>99%) on doubledigit to high single-digit reversions, which provide a safety haven for investors.

Source: Kenanga Research - 24 Jan 2018