INVESTMENT HIGHLIGHTS

• 1QFY18 earnings in line

• Earnings driven by organic growth

• Earnings estimates maintained

• Maintain BUY with an unchanged TP of RM1.73

1QFY18 earnings in line. IGB REIT 1QFY18 core net income of RM82.3 came in within expectations, making up 26.8% and 26.2% of our and consensus full year estimates. IGB REIT announced distribution per unit (DPU) of 2.48sen for 1QFY18 as it has changed its distribution policy to quarterly from half-yearly.

Earnings driven by organic growth. On a sequential basis, 1QFY18 earnings grew 6.6%qoq to RM82.3m, mainly due to seasonally higher shopper traffic in first quarter. Similarly, 1QFY18 earnings were higher by 9.1%yoy on the back of higher topline (+2.3%yoy). The higher net income was mainly buoyed by positive rental reversions. Rental reversions of Mid Valley Megamall and the Gardens Mall are at around +5% per annum due to high occupancy rates of the two malls.

Earnings estimates maintained. We maintain our earnings forecasts for FY18/19. Earnings prospect of IGB REIT expected to stay positive, driven by organic growth of positive rental reversion.

Maintain BUY 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%). We maintain our positive view on IGB REIT as we expect Mid Valley and The Gardens to continue do well due to good connectivity and prime locations of the malls, which should continue to attract footfall. Meanwhile, dividend yield is also attractive at 5.5%.

Source: MIDF Research - 24 Apr 2018