IGB  REIT’s  2QFY13  results  were  within  expectations,  with  revenue getting  a  boost  from  positive  rental  reversion.  However,  we  deem  the stock fairly valued currently given that its current P/NAV of 1.2x is close to the sector’s 1.1x.  In  addition,  catalysts  in  the  form  of  inorganic growth  opportunities  are  also  lacking.  We  maintain  NEUTRAL  on  the REIT, with an unchanged FV of MYR1.31. 
 
- In  line.  IGB  REIT’s 2QFY13 net profit of MYR50.7m  (+5.6%  q-o-q) brought  its  1HFY13  net  profit  to  MYR100.0m,  in  line  with  our  and consensus estimates. As IGB REIT was only listed in Sept 2012, a year-on-year comparison of its results is thus unavailable. IGB REIT declared a  3.43  sen  dividend  for  1HFY13,  on  track  to  meet  our  full-year  FY13 distribution per unit (DPU) forecast.  

-  Positive  rental  reversion  buoys  growth.  Total  revenue  grew  5.6% sequentially, mainly boosted by the positive rental reversion arising from the  renewal  of  some  leases.  We  also  believe  that  the  trust’s asset enhancement initiative (AEI) on the third floor of Mid Valley Megamall is starting  to  bear  fruit.  However,  the  higher  expenses  incurred  during  the quarter dragged down net profit growth slightly, resulting in only  a 2.9% growth.  We reiterate our view that IGB REIT’s next growth catalyst will likely be the major rental renewal for The Gardens Mall (TGM), as leases for about 54% of its net lettable area (NLA) are due to expire this year.

- Risks. The risks to our view include a further rise in bond yields.

- Maintain  NEUTRAL.  We  make  no  changes  to  our  earnings  forecasts. We maintain  our  NEUTRAL  rating,  with  an  unchanged  FV of  MYR1.31. We believe that the stock is now fairly valued considering that its current P/NAV of 1.2x is very close to the sector average of 1.1x. In addition, the trend of rising bond yields is not favourable for REITs. In the meantime, there is a lack of catalysts from inorganic growth, while the REIT’s near-term  earnings  will  be  bolstered  by  the  upcoming  renewal  of  leases  at TGM and regular AEIs at the mall, including Mid Valley Megamall.

Source: RHB