KEY INVESTMENT HIGHLIGHTS

• 1HFY20 within expectations

• Full quarter impact from MCO

• Earnings to recover in 2HFY20

• Earnings forecast maintained

• Maintain NEUTRAL with an unchanged TP of RM1.70

1HFY20 within expectations. IGB REIT’s 1HFY20 core net income of RM87.9m is deemed within expectations despite only making up 38% and 35% of our and consensus full year estimates as we expect 2HFY20 earnings to recover from Movement Control Order (MCO). Meanwhile, a DPU of 0.62sen was announced for 2QFY20, bringing cumulative DPU to 2.56sen per share.

Full quarter impact from MCO. On sequential basis, 2QFY20 core net income is weaker at RM19.5m (-71.5%qoq) due to full quarter’s impact from MCO which was implemented on 18th March 2020. Note that only tenants who provide essential services are allowed to operate during the MCO period while IGB REIT has provided rental support to tenants. That coupled with lower car park income and lower turnover rent has led to the fall in earnings in 2QFY20. Meanwhile, the weaker earnings in 2QFY20 brought cumulative earnings in 1HFY20 to be lower at RM87.9m (-45.4%yoy).

Earnings to recover in 2HFY20. We expect earnings to recover in 2HFY20 as shopper traffic recovers gradually while retail shops in Mid Valley are gradually reopening. Nevertheless, we only expect earnings to recover gradually as we think it will take a while for shopper traffic to revert to pre-Covid-19 levels. In a nutshell, we make no changes to our earnings forecast for FY20/21F.

Maintain NEUTRAL with an unchanged TP of RM1.70. We maintain our TP for IGB REIT at RM1.70, based on Dividend Discount Model (DDM) valuation. We maintain NEUTRAL on IGB REIT due to subdued retail backdrop in the near-term. Meanwhile, dividend yield is expected to taper to below 4% in FY20.

Source: MIDF Research - 21 Jul 2020