We remain NEUTRAL on IGB REIT, with an unchanged MYR1.31 FV. The company’s  3Q13  results  were  in  line  with  expectations,  with  revenue getting a boost  from  the  kicking in of positive rental reversion.  We find IGB REIT fairly valued  at present, with its short- to medium-term growth likely  to  be  buoyed  by  upside  from  The  Gardens  Mall’s  recent  major rental renewal and ongoing refurbishment at Mid Valley Megamall.

• In line. IGB REIT’s 3Q13 net profit of MYR53.8m (+>100% y-o-y; +6.1% q-o-q) brought the company’s 9M13 net profit to MYR153.9m, in line with our and consensus estimates.  As  IGB REIT was only listed  on 21 Sept 2012,  a  y-o-y  comparison  would  not  be  meaningful.  The  REIT  did  not declare  any  dividend  for  the  quarter  under  review  as  it  distributes  its dividend semi-annually. 
   
• Positive rental reversion buoys growth. Revenue inched up only 0.9% q-o-q  while  net  property  income  (NPI)  margins  improved  slightly  to 68.2%  in  3Q13 from  65.9% in 2Q13.  The  asset enhancement initiative (AEI)  on the third floor of Mid  Valley Megamall  (MVM)  continued  to  yield fruit,  helping  to  drive  IGB  REIT’s  topline  growth.  The  REIT’s  gearing remained  low at 0.25x.  Based on the company’s  comments in relation to its  results,  management  does  not  expect  the  recent  fuel  price  hike  to have  an  adverse  impact  on  its  4Q13  earnings  in  view  of  the  REIT’s strong performance YTD.
   
• Risks. The risks to our view include a further rise in bond yields.
   
• Maintain  NEUTRAL.  No  changes  to  our  earnings  forecasts.  We maintain  our  NEUTRAL call,  with  an  unchanged MYR1.31  FV.  We note that  there  is  limited  upside  to  IGB  REIT’s  share  price  given  the uncertainty  over  the  timing of  US  Fed’s  QE tapering, which will have an impact  on  bond  yield.  Meanwhile,  the  REIT’s  short-  to  medium-term growth  is  likely  to  be buoyed by  The Gardens  Mall’s recent  major rental renewal as well as MVM’s ongoing asset enhancement initiatives.

Source: RHB