FY22 net profit of RM336.2m (up 68% YoY) met expectations, coming in at 0.8%/1.8% above our/consensus forecasts. The strong performance was mainly led by higher revenue contribution. DPU of 2.46 sen in 4QFY22 brought full-year DPU to 9.86 sen (within our estimate of 9.73 sen). Our recommendation remains a MARKET PERFORM with unchanged 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%).

Within expectations. Driven by higher gross revenue of RM556.4m (+39% YoY), core net profit came in at RM336.2m (up 68% YoY) in FY22, or 0.8%/1.8% above our/consensus full-year estimates. 4QFY22 DPU of 2.46 sen took full-year DPU to 9.86 sen (versus our FY22 projection of 9.73 sen).

Results’ highlights. The stronger gross revenue was attributed to minimal rental support provided to tenants (since 4QFY21) following the reopening of the economy and better tenant sales. And after accounting for a lower growth of 9% to RM136.2m in property operating expenses, net property income (NPI) jumped 53% to RM420.2m. Meanwhile, its bottomline was skewed by a lumpy increase in fair value on investment properties of RM60.0m in FY22 (nil in FY21). By asset, Mid Valley Megamall logged NPI of RM301.9m (up 51% YoY) while The Gardens Mall contributed NPI of RM118.4m (+58% YoY). Both malls continued to enjoy high occupancy rates of 99.9% as of end December 2022 while gearing level stood at 23% (unchanged QoQ).

Outlook. IGBREIT is expected to see normalised earnings pattern ahead as the base effect dissipates (with the strong earnings rebound that started in 4QFY21 following the post Covid-19 transition into Phase 4 of the national recovery plan on 18 October 2021). Reflecting this, 4QFY22 registered revenue of RM148.7m (+6% QoQ) and core net profit of RM83.9m (+1% QoQ). This comes as average gross monthly rental income has already surpassed slightly the 2019 levels for both malls. Clouding the outlook further is the challenging macroeconomic backdrop weighed by the elevated inflationary condition and economic recession worries.

Forecasts update. Post results, our net profit forecasts are RM341.1m (unchanged) for FY23 and RM355.2m (new) for FY24. We have projected gross DPU of 9.9 sen (unchanged) and 10.2 sen (new), respectively, which imply yields of 5.6% and 5.8%.

Still a MARKET PERFORM. We are keeping our TP of RM1.65 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) amid the competitive retail industry environment. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.

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 - 20 Jan 2023