INVESTMENT HIGHLIGHTS

• 9MFY18 earnings in line

• Marginal earnings growth

• Earnings estimates maintained

• Maintain NEUTRAL with an unchanged TP of RM1.73

9MFY18 earnings in line. IGB REIT 9MFY18 core net income of RM228.2m came in within expectations, making up 74% and 73% of our and consensus full year estimates. IGB REIT announced distribution per unit (DPU) of 2.29sen for 3QFY18, bringing cumulative DPU to 6.91sen for 9MFY18. Note that IGB REIT has changed its distribution policy to quarterly from half-yearly.

Marginal earnings growth. On a sequential basis, 3QFY18 core net income climbed 8%qoq, primarily due to higher shopper traffic in 3Q as a result of festive season (Hari Raya Aidilfitri). Meanwhile, 3QFY18 core net income was lower by 8.8%yoy despite higher gross revenue of RM133.7m (+3.2%yoy) as last year’s earnings were boosted by onetime write-back of step-up interest arising from fixed rate term loan. On cumulative basis, core net earnings remained stable at RM228.2m (+0.9%yoy) due to higher rental income from Mid Valley Megamall and the Gardens Mall.

Earnings estimates maintained. We maintain our earnings forecasts for FY18/19. Earnings outlook for IGB REIT is expected to remain steady due to positive rental reversion outlook for Mid Valley Megamall and the Gardens Mall. Rental reversion of the two malls expected to remain at around +5% per annum, underpinned by high occupancy rates of the two malls.

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%). We think that the stable earnings outlook for IGB REIT is priced in at the moment while dividend yield is expected to be moderate at 4.9%. Hence, we are maintaining our Neutral recommendation on IGB REIT.

Source: MIDF Research - 25 Oct 2018