1HFY21 realised net income (RNI) of RM88.0m came in broadly within our (42%), but below consensus (34%), expectations, as we expect a stronger 2HFY21 premised on a reopening of the economy. 1HFY21 GDPU of 2.68 sen is also broadly within (44%). Maintain FY21-22E earnings of RM208-293m. Maintain MARKET PERFORM and TP of RM1.70 on FY22E valuation as we expect earnings to normalise by then.

1HFY21 realised net income (RNI) of RM88.0m came in broadly within our expectation at 42%, but below consensus’ at 34%. This is due to our expectation of earnings picking up in 4QFY21 with the reopening of the economy, premised on the high roll-out of Covid-19 vaccinations in 3QFY21, and in conjunction with seasonally strong 4Q period. A 2QFY21 dividend of 1.35 sen was declared, which included a 0.02 sen non-taxable portion bringing 1H21 dividends to 2.68 sen which is also broadly within at 44% of our FY21 estimate of 6.07 sen, implying 3.7% gross yield.

Results’ highlight. YoY-Ytd, top-line was down marginally by 1% as a result of MCO 2.0 which affected tenants in Jan-Feb 2021 and in 2QCY21, while FY20 saw rental weakness since mid-March due to the pandemic. As a result, RNI was flat on the back of marginally lower operating cost (-4%). QoQ, RNI was down by 15% on the back of higher rental support provided to tenants during the quarter, but lower operating cost (-41%) allowed RNI to increase marginally by 1.4%. Gearing remains stable at low level of 0.23x.

Outlook. The impact of a worsening Covid-19 situation in FY21 will continue to exert pressure in 1QFY21-3QFY21 and the group will strive to retain tenants through rental support for affected tenants. FY21-22 will see minimal expiries for both malls, at <30% which provides some comfort during these current economic conditions. We do not expect the acquisition of Southkey Mall in Johor to happen in the near term and reckon that it would take at least one reversion cycle or longer in light of the Covid-19 pandemic for the asset to stabilise before being acquired by IGBREIT, likely by FY22-23.

Maintain FY21-22E CNP of RM208-293m on flattish to low single-digit positive reversions and minimal expiries. Our FY21-22E GDPU of 6.07- 8.27 sen (NDPU of 5.46-7.44 sen) suggest gross yield of 3.7-5.0% (net yield of 3.3-4.5%).

Maintain MARKET PERFORM and TP of RM1.70 on FY22E GDPS/NDPS of 8.27 sen/7.45 sen and on an unchanged +1.2ppt spread to our 10-year MGS yield target of 3.60%. Our applied spread is at +0.5SD, on par with other MREITs under our coverage. We expect IGBREIT to rebound towards the year-end with earnings normalizing in FY22 assuming a successful vaccination roll-out paving the way for economy reopening by 4QCY21. We will continue to monitor the situation closely but opt to remain cautiously optimistic on improvements to earnings going forward.

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

Source: Kenanga Research - 27 Jul 2021