INVESTMENT HIGHLIGHTS

• 1HFY19 earnings within expectations

• Earnings driven by positive rental reversion

• Earnings forecasts maintained

• Maintain NEUTRAL with a revised TP of RM1.90

1HFY19 earnings within expectations. IGB REIT 1HFY19 core net income of RM160.8m came in within expectations, making up 49% and 51% of our and consensus full year estimates respectively. Meanwhile, IGB REIT announced distribution per unit (DPU) of 2.26sen for 2QFY19, bringing cumulative DPU to 4.66sen for 1HFY19.

Earnings driven by positive rental reversion. On a sequential basis, 2QFY19 core net income was lower at RM77.9m (-6%qoq) due to seasonally lower shopper traffic in second quarter comparing to first quarter. On yearly basis, 1QFY19 earnings were higher at RM77.9m (+11%yoy), bringing 1HFY19 cumulative earnings to RM160.8m (+5.5%yoy). The stable earnings in 1HFY19 were mainly supported by higher rental income due to positive rental reversion in Mid Valley Megamall and the Gardens Mall.

Earnings forecasts maintained. We maintain our earnings forecasts for FY19/20. We forecast earnings growth of IGB REIT to remain in positive territory, underpinning by rental reversion of around +5% per annum in Mid Valley Megamall and the Gardens Mall.

Maintain NEUTRAL with a revised TP of RM1.90. We revise our TP for IGB REIT to RM1.90 from RM1.79 as we roll over our valuation 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 4.4%.

Source: MIDF Research - 24 Jul 2019