INVESTMENT HIGHLIGHTS

• FY18 earnings within expectations

• Flattish full year earnings

• Stable rental reversion outlook

• Maintain NEUTRAL with a revised TP of RM1.77

FY18 earnings within expectations. IGB REIT FY18 core net income of RM303.8m came in within expectations, making up 99% and 98% of our and consensus full year estimates. IGB REIT announced distribution per unit (DPU) of 2.28sen for 4QFY18, bringing cumulative DPU to 9.19sen for FY18. Note that IGB REIT has changed its distribution policy to quarterly from half-yearly.

Flattish full year earnings. On a sequential basis, 4QFY18 core net income was flattish at -0.4%qoq. Meanwhile, 4QFY18 core net income was lower at -2.1%yoy, bringing cumulative earnings in FY18 to RM303.8m (+0.1%yoy). Earnings were flattish in FY18 as higher rental income from Mid Valley Megamall and the Gardens Mall were offset by higher finance cost (+21%yoy). Rental income of the two malls remains stable in FY18, underpinned by high occupancy rates of the malls.

Stable rental reversion outlook. We fine-tuned our earnings forecast for FY19 by +1% following the release of FY18 full year earnings figures. We also introduce our earnings forecast for FY20. 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 is expected to remain at around +5% per annum, underpinned by high occupancy rates of the two malls.

Maintain NEUTRAL with a revised TP of RM1.77. Our TP for IGB REIT is revised to RM1.77 from RM1.73 as we roll over our base year. Our valuation is based on Dividend Discount Model (DDM) valuation (Required rate of return: 7.5%, Perpetual growth rate: 1.5%). We maintain Neutral on IGB REIT due to limited upside. Meanwhile, dividend yield is estimated at 4.8%.

Source: MIDF Research - 24 Jan 2019