INVESTMENT HIGHLIGHTS

• 1QFY19 earnings within expectations

• Stable earnings on positive rental reversion

• Earnings forecast fine-tuned

• Maintain NEUTRAL with a revised TP of RM1.79

1QFY19 earnings within expectations. IGB REIT 1QFY19 core net income of RM82.9m came in within expectations, making up 25% of our and consensus full year estimates. Meanwhile, IGB REIT announced distribution per unit (DPU) of 2.40sen for 1QFY19.

Stable earnings on positive rental reversion. On a sequential basis, 1QFY19 core net income climbed by a 9.8%qoq to RM82.9m due to seasonally higher shopper traffic in 1QFY19 and lower property expenses (-7.3%qoq). Meanwhile, 1QFY19 earnings were stable on yearly basis, growing by 0.8%yoy. The marginally higher earnings in 1QFY19 were mainly driven by higher rental income from Mid Valley Megamall and the Gardens Mall. Rental reversions of the two malls remains in positive territory due to high occupancy rates of the two malls.

Earnings forecast fine-tuned. We revised upwards our earnings forecast for FY19/20 by +1% as we factor in the net lettable area expansion of the Gardens Mall following asset enhancement initiatives. Meanwhile, we expect earnings of IGB REIT to underpin by rental reversion of around +5% per annum.

Maintain NEUTRAL with a revised TP of RM1.79. Corresponding to the earnings upwards revision, our TP for IGB REIT is revised to RM1.79 from RM1.77. 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 4.6%.

Source: MIDF Research - 25 Apr 2019