FY19 realised net income (RNI) of RM315.9m came in well within our (101%) and consensus (98%) expectations. FY19 GDPU of 9.16 sen is also in-line (95%). Maintain FY20E CNP of RM317m and introduce FY21E CNP of RM323m. We continue to expect almost full occupancy and low-to-mid single-digit reversions given IGBREIT’s stable asset profile. Maintain OP and TP of RM2.05 on an implied gross yield of 4.7%.

FY19 realised net income (RNI) of RM315.9m came in well within

our, and consensus, expectation at 101% and 98%, respectively. 4QFY19 GDPU of 2.19 sen was declared, which included a 0.04 sen non-taxable portion, bringing FY19 GDPU to 9.16 sen which is also within our FY19E target (95%) of 9.61 sen, implying 4.7% gross yield.

Results’ highlight. YoY, top-line was up by 3% on higher rental income from both assets (Mid Valley and The Gardens Mall), likely on positive reversions backed by stable occupancy. NPI margin were flattish but RNI margin improved (+0.5ppt) on flattish financing cost despite the higher top-line. QoQ, top-line was up slightly by 2% likely due to similar reasons mentioned above. However, higher operating cost (+22%) due to higher maintenance expense caused bottom-line to slip by 5.7%.

Outlook. We expect minimal capex of RM10-15m for FY20-21 for minor refurbishments and upkeep of both malls. 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.

We maintain FY20E CNP of RM317m and introduce FY21E CNP of RM323m. Our earnings are driven by low-to-mid single-digit reversion for both assets on 98% occupancy. Our FY20-21E GDPU of 9.71-9.84 sen (NDPU of 8.65-8.74 sen), suggest gross yield of 5.0-5.0% (net yield of 4.5-4.5%).

Maintain OUTPERFORM and Target Price of RM2.05. Our TP is based on FY20E GDPS/NDPS of 9.71 sen/8.74 sen and on an unchanged +1.3ppt spread to our 10-year MGS yield target of 3.40%.

Our applied spread is on the lower end vs. MREITs under our coverage (+1.3 to +3.2ppt) as we like IGBREIT for having a prime asset profile that consistently delivers stable occupancy and positive reversions. We are comfortable with our OUTPERFORM call (offering potential total return of 10%) as we believe we have priced in most positives for now, while downside risks are limited given IGBREITs prime assets. Current gross yield of 5.0% is trading below retail MREIT peers under our coverage of 5.4%.

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

Source: Kenanga Research - 23 Jan 2020