2QFY22 net profit of RM83.5m (+88% YoY) lifted 1HFY22 net profit to RM168.9m (+92% YoY) – above our expectation. DPU of 2.45 sen (in 2QFY22) and 4.96 sen (in 1HFY22) are ahead of our full-year estimate of 7.4 sen. We have tweaked our FY22-FY23 earnings forecasts higher by 14% each. Maintain MARKET PERFORM with a revised TP of RM1.65 based on a target yield of 6.0% (which implies a 1.5% yield spread above our 10-year MGS assumption of 4.5%). There is no adjustment to our TP based on ESG for which it is given a 3-star rating as appraised by us.

Above expectations with 1HFY22 net profit of RM168.9m (+92% YoY) which accounted for 58%/55% of our/consensus full-year estimates. DPU of 2.45 sen for 2QFY22 was announced, taking 1HFY22 DPU to 4.96 sen (or 67% of our full-year estimate).

Results’ highlights. YoY, on the back of a 58% jump in gross revenue to RM133.8m, net profit soared 88% to RM83.5m in 2QFY22 as lease revenue recovered (+75%) from the Covid-19 disruptions in 2QFY21. QoQ, topline was flat while net profit eased by 2%. For 1HFY22, gross revenue stood at RM267.6m (+45% YoY) while net profit rose 92% YoY to RM168.9m amid higher net property income margin (at 79.8% versus 68.1% previously). In terms of net property income breakdown, Mid Valley Megamall contributed 71% (or RM150.7m) while the balance 29% (or RM62.8m) came from The Gardens Mall. Both assets saw high occupancy rate at 99.7% as of end-June 2022 (same as end-March 2022). Gearing level was unchanged at 23%.

Outlook. With the Malaysian economy on the mend, the recovery momentum is expected to continue as average gross monthly rental income has rebounded from the 2020/2021 levels to be almost back to the 2019 threshold while footfall is currently at c.90%-95% of pre- pandemic number (of an average of 3m per month). Nonetheless, the underlying business outlook may be clouded by cautious consumer spending amid a rising inflationary environment and concerns over a possible recession.

Tweaking our forecasts. Following the 1HFY22 performance, we have adjusted our net profit projections to RM333.4m (+14%) for FY22 and RM341.1m (+14%) for FY23 after tweaking up our lease income and margin assumptions. Our FY22 and FY23 gross DPU forecasts now stand at 9.7 sen (from 7.4 sen) and 9.9 sen (from 7.5 sen), respectively, which imply yields of 6.1%-6.2%.

Still MARKET PERFORM. We have revised our TP to RM1.65 (from RM1.50) based on a target yield of 6.0% (which is derived from a 1.5% yield spread above our 10-year MGS assumption of 4.5%). This takes into consideration IGBREIT’s quality asset portfolio (as reflected by the high occupancy rates) notwithstanding the competitive retail industry environment the group is operating in.

Risks to our call include: (i) bond yield contraction/expansion, (ii) higher/lower-than-expected rental reversions, and (iii) higher/lower-than-expected occupancy rates.

Source: Kenanga Research - 28 Jul 2022