INVESTMENT HIGHLIGHTS

• 1QFY17 earnings within expectations

• Resilient earnings

• Earnings estimates maintained

• Maintain NEUTRAL with an unchanged TP of RM1.73

1QFY17 earnings within expectations. IGB REIT 1QFY17 core net income of RM75.4m came in within expectations, meeting 26% and 25% of our and consensus full year estimates respectively. No distribution per unit (DPU) was declared for the quarter as IGB REIT distributes DPU on half-yearly basis.

Resilient earnings. IGB REIT recorded improving core net earnings on a sequential basis, growing 7.3%qoq to RM75.4m. The stronger sequential earnings were mainly driven by seasonally higher shopper traffic in 1Q. Similarly, core net earnings were solid on a yearly basis, increasing 3.5%yoy. The increase in earnings was largely due to positive rental reversion of around +5%p.a. in Mid Valley Megamall and the Gardens Mall on the back of high occupancy rates of the two malls. Going forward, we continue to expect positive rental reversion of +5%p.a. for the two malls as we believe demand for retail space in the two malls remains strong.

Earnings estimates maintained. We maintain our earnings forecast for FY17-18. We are forecasting earnings of IGB REIT to grow 4.3% and 5.9% in FY17 and FY18 respectively. Earnings growth of IGB REIT is expected to be driven by organic growth i.e. positive rental reversion as we see no visible asset injection in the near-term.

Maintain NEUTRAL with an unchanged TP of RM1.73. We maintain our TP for IGB REIT at RM1.73, based on Dividend Discount Model (DDM) valuation (Required rate of return: 7.5%, Perpetual growth rate: 1.5%). While we continue to expect earnings growth of IGB REIT to remain on positive trajectory going forward on the back of solid performance of its retail assets, its dividend yield had tapered off to 4.9% following the recent gain in share price. Hence, we are maintaining our Neutral call.

Source: MIDF Research - 26 Apr 2017