KEY INVESTMENT HIGHLIGHTS

• 9MFY20 within expectations

• Earnings recovered from impact of MCO but still lower on yearly basis

• Subdued outlook ahead due to resurgence of Covid-19 cases

• Maintain NEUTRAL with a revised TP of RM1.66

9MFY20 within expectations. IGB REIT’s 9MFY20 core net income of RM164.7m came in within expectations, making up 71% and 75% of our and consensus full year estimates respectively. Meanwhile, a DPU of 2.11sen was announced for 3QFY20, bringing cumulative DPU to 4.67sen per share.

Earnings recovered from impact of MCO but still lower on yearly basis. On sequential basis, 3QFY20 core net income surged to RM76.8m (+294%qoq) as earnings recovered from adverse impact of MCO. Note that earnings in 2QFY20 were dampened by rental supports to tenants and lower car park income. On yearly basis, 3QFY20 core net income was lower (-3.7%yoy), bringing 9MFY20 cumulative earnings to RM164.7m (-31.5%yoy). The lower earnings were mainly due to lower rental income during MCO period, lower car park income and lower turnover rent as a result of lower footfall at Mid Valley Megamall and The Gardens Mall.

Subdued outlook ahead due to resurgence of Covid-19 cases. We expect 4QFY20 outlook for IGB REIT to be unexciting due to resurgence of Covid-19 cases in Malaysia. Shopper traffic at shopping malls is expected to be low in 4QFY20 due to implementation of CMCO in Klang Valley and as Covid-19 cases were reported at shopping malls in Klang Valley. In a nutshell, we revise our FY20/21F earnings forecasts by -6.8%/-2% as we expect lower footfall to hurt rental income.

Maintain NEUTRAL with a revised TP of RM1.66. Corresponding to the downward revision in earnings, our TP for IGB REIT is revised to RM1.66 from RM1.70. Our TP is based on Dividend Discount Model (DDM) valuation. We maintain Neutral on IGB REIT due to subdued outlook for retail malls in Klang Valley in the near-term. Meanwhile, dividend yield is expected be below at 3.6% in FY20.

Source: MIDF Research - 27 Oct 2020