KEY INVESTMENT HIGHLIGHTS

• FY19 earnings in line

• Earnings driven by higher rental income

• Earnings forecast unchanged

• Maintain NEUTRAL with an unchanged TP of RM1.90

FY19 earnings in line. IGB REIT’s FY19 core net income of RM315.9m came in within expectations, making up 96% and 98% of our and consensus full year estimates. A DPU of 2.16sen was announced, bringing cumulative DPU to 9.16sen in FY19 and translates into gross distribution yield of 4.7%.

Earnings driven by higher rental income. On sequential basis, 4QFY19 revenue is higher at RM139.6m (+2.4%qoq) due to seasonally higher shopper traffic in 4Q. Nevertheless, core net income was lower at RM75.3m (-5.7%qoq) mainly due to higher expenses. That brings cumulative core net income to RM315.9m (+4%yoy) in FY19. Earnings were resilient in FY19, driven by higher rental income from Mid Valley Megamall and The Gardens Mall. Rental reversions of the two malls remain supported by high shipper traffic.

Earnings forecast unchanged. We make no changes to our earnings forecast for FY20F. We also introduce our earnings forecast for FY21F. Earnings of IGB REIT is expected to be resilient going forward as we believe the positive rental reversion is sustainable due to high shopper traffic at the two malls.

Maintain NEUTRAL with an unchanged TP of RM1.90. We maintain our TP of RM1.90. Our valuation based on Dividend Discount Model (DDM) valuation (Required rate of return: 7.5%, Perpetual growth rate: 1.5%), is unchanged. We maintain Neutral on IGB REIT due to limited upside. Meanwhile, dividend yield is estimated at 4.6%.

Source: MIDF Research - 23 Jan 2020