IGB REIT’s 1QFY13 net profit of MYR49.3m came in line with expectations. The decent 5.2% net profit growth was mostly driven by the lower advertising and promotion expenses in 1QFY13. We reiterate our NEUTRAL call on IGB REIT with  unchanged fair value of MYR1.43. IGB REIT’s next earnings kicker will be The Garden’s Mall major rental reversion in 3QFY13.

- No surprises. IGB REIT’s 1QFY13 net profit of MYR49.3m (+5.2% q-o-q) came in line with estimates. Q-o-q revenue dipped slightly by 1.55%, mainly due to the lower percentage rent in the current quarter. However, this was offset by the lower advertising and promotional expenses, leading to the decent net profit growth. We expect earnings to pick up in the later quarters as the impact of rental reversions starts to kick-in. No dividend was declared during the quarter as IGB REIT only distributes its dividends semi-annually. 

- Unlocking The Gardens Mall’s full value. We reiterate that the REIT will very much concentrate on growing Mid Valley Megamall (MVM) and The Gardens Mall (TGM) organic values over the immediate term. The major rental renewal for TGM, where leases for about 54% of its NLA are due to expire this year, could surprise on the upside. Management expects rental reversions of about 15% (over a three-year period) for TGM’s renewals, in line with our assumptions for now.  

- Regular enhancements and tenancy remixing key to sustaining MVM’s growth.  MVM continues to be IGB REIT’s main income contributor, representing about 76% of the REIT’s total net property income (NPI). MVM’s tenants remixing and space reconfiguration 
exercise has started to bear fruit, as reflected in the 3.4% sequential growth at the NPI level. Given its age (more than ten years old), the key to MVM’s sustainability will be through the constant revitalisation of the asset. This could include the remixing of its anchor space in the future. Management has allocated about MYR6.25m for refurbishments of both MVM and TGM in FY13 and we expect the bulk of this to go to MVM.  

- Reiterate NEUTRAL. No changes to forecasts. We are maintaining our NEUTRAL call on IGB REIT, with unchanged fair value of MYR1.43. The next earnings kicker for IGB REIT will be TGM’s major rental reversion.

Source: RHB