1H19 Realised Net Income (RNI) of RM160.8m came in well within our (52%) and consensus (51%) expectations. 1H19 GDPU of 4.66 sen is also in-line (49%). FY19-20E CNP of RM312-317m remains unchanged. Going forward, we expect almost full occupancy on low-to-mid single-digit reversions given IGBREIT’s stable asset profile. Maintain MP and TP of RM1.80 on minimal upsides as gross yield of 5.4% is close to comparable peers’ average of 5.3%.

1H19 RNI of RM160.8m came in well within our, and consensus, expectations, at 52% and 51%, respectively. 1H19 GDPU of 4.66 sen was declared, which included a 0.04 sen non-taxable portion, which is also within our FY19E target (49%) of 9.61 sen, implying gross yield of 4.9%.

Results highlight. YoY-Ytd, top-line increased by 4.3% on higher rental income mostly from positive reversions backed by stable occupancy. NPI margin was marginally unchanged at 73% but flattish financing cost allowed RNI to increase by 5.5%. QoQ, top-line was down by 4.4% as 2Q is generally a weaker quarter being a non-festive period. This coupled with marginally lower NPI margins (-0.3ppt) and slightly higher financing cost (+1.1%) resulted in RNI declining by 6.0%.

Outlook. We expect minimal capex of RM25-10m for FY19-20E for minor refurbishments and upkeep of both malls. FY19 will see 23% and 44% of MV and TGM’s NLAs up for expiry, respectively. We do not expect the acquisition of Southkey Mall in Johor in the near term and reckon that it would take at least one reversion cycle for the asset to stabilise before being acquired by IGBREIT, likely by FY21-22.

Maintain FY19-20E CNP of RM312-317m. Our FY19-20E CNP is driven by low-to-mid single-digit reversion for both assets on 98% occupancy. Our FY19-20E GDPU of 9.61-9.71 sen (NDPU of 8.65-8.74 sen), suggest gross yield of 4.9-5.0% (net yield of 4.4-4.5%).

Maintain MARKET PERFORM and Target Price of RM1.80. Our TP of RM1.80 remains unchanged post rolling forward our valuation base to FY20E GDPU/NDPU of 9.71 sen/8.74 sen (from FY19E GDPU/NDPU of 9.61 sen/8.65 sen) and on an unchanged +1.7ppt spread to our 10-year MGS yield target of 3.70%. Our applied spread is based on its historical average level due to its stable asset profile. We are comfortable with our MARKET PERFORM call as we believe we have priced in most positives for now (i.e. close to full occupancy on positive reversions), while downside risks are limited. Current gross yield of 5.4% is on par with retail MREIT comparable peers under our coverage of 5.3% (note that the peers’ average excludes CMMT, which commands a higher gross yield of 7.0% given its less-than-perfect asset profile from negative reversions and lower occupancy vs. peers).

Risks to our call include: bond yield compressions or expansion, stronger or weaker-than-expected rental reversions.

Source: Kenanga Research - 24 Jul 2019