INVESTMENT HIGHLIGHTS

• FY16 earnings within expectations

• Uninterrupted earnings growth

• Earnings estimates fine-tuned

• Maintain NEUTRAL with a revised TP of RM1.73

FY16 earnings within expectations. IGB REIT FY16 core net income of RM277.8m was within expectations, meeting 103% and 101% of our and consensus full year estimates respectively. Distribution per unit (DPU) of 4.30sen was declared, bringing total DPU to 8.71sen in FY16.

Uninterrupted earnings growth. IGB REIT reported stronger sequential earnings in 4QFY16 which grew 2%qoq to RM70.3m. On a yearly basis, earnings was decent whereby 4QFY16 core net profit increased 32%yoy, as last year earnings was dragged by the surge in borrowing cost. That brought FY16 core net profit to RM277.8m, increasing 9%yoy. IGBREIT managed to record yet another positive earnings growth in FY16 since its listing in FY12 despite the challenging retail backdrop in FY16, mainly due to the sustainable positive rental reversion of around +5%p.a. in Mid Valley Megamall and the Gardens Mall which underpinned by the high occupancy rates of the two malls.

Earnings estimates fine-tuned. We revise upwards our earnings forecast for FY17 marginally by <1% post the release of FY16 number. We also introduce our earnings forecast for FY18. We estimate IGBREIT to continue on positive earnings trajectory going forward due to strong demand for retail space in Mid Valley Megamall and positive rental reversion of +5%. We are forecasting earnings in FY17 and FY18 to grow 4.3% and 5.9% respectively.

Maintain NEUTRAL with a revised TP of RM1.73 (previously: RM1.63), as we roll over our valuation to FY17. Our TP is based on Dividend Discount Model (DDM) valuation (Required rate of return: 7.5%, Perpetual growth rate: 1.5%). While we are positive on the earnings outlook for IGB REIT, dividend yield had tapered off to 4.9% following the recent run up in share price. Hence, we maintain our Neutral call on IGB REIT.

Source: MIDF Research - 26 Jan 2017