• 1HFY17 earnings within expectations

• Earnings on track

• Earnings estimates maintained

• Maintain NEUTRAL with an unchanged TP of RM1.73

1HFY17 earnings within expectations. IGB REIT 1HFY17 core net income of RM143.1m came in within expectations, meeting 49% and 48% of our and consensus full year estimates respectively. IGB REIT declared distribution per unit (DPU) of 4.38sen (ex-date: 14 August 2017) for 1HFY17.

Earnings on track. On a sequential basis, 2QFY17 earnings fell 10.2%qoq to RM67.7m mainly due to seasonally lower shopper traffic in 2Q as festive season in 1Q helped to draw more shopper traffic. Meanwhile, lower sequential earnings were also attributed to higher maintenance and property upgrade expenses in 2QFY17 which resulted in 4.6% increase in total property expenses. Nevertheless, earnings were steady on yearly basis, having 2QFY17 core net income of RM67.7m climbed 2.7%yoy. That brought cumulative 1HFY17 core net income higher at RM143.1m (+3.1%yoy). The solid earnings were driven by positive rental reversion in Mid Valley Megamall and the Gardens Mall. Rental reversion of the two malls is typically at around +5% per annum, underpinned by high occupancy rates of the two malls (close to 100% occupied). Looking ahead, we believe rental reversion should sustain at +5%p.a. for IGB REIT due to persistently high occupancy rates of the two malls.

Earnings estimates maintained. We maintain our earnings forecast for FY17-18. We estimate earnings of IGB REIT to increase 4.3% and 5.9% in FY17 and FY18 respectively, driven mainly by positive rental reversion. Meanwhile, we see no visible asset injection in the near-term.

Maintain NEUTRAL with an unchanged TP of RM1.73. We maintain our target price for IGB REIT at RM1.73, based on Dividend Discount Model (DDM) valuation (Required rate of return: 7.5%, Perpetual growth rate: 1.5%). Maintain Neutral on IGB REIT due to limited share price upside. Nevertheless, earnings outlook for IGB REIT is stable due to the stable earnings from its two malls. Meanwhile, dividend yield is estimated at 4.9%.

Source: MIDF Research - 3 Aug 2017