2Q15 results came in slightly above estimates. Maintain NEUTRAL and DDM-based TP of MYR1.40 (8% upside). DPU grew 11.2% YoY on the back of positive rental reversions and lower property expenses. Despite the current challenging retail environment, management expects revenue to remain stable throughout the year, as it believes consumer confidence should return from 4Q15 onwards.

Slightly above expectations. IGB REIT registered 2Q15 core profit of MYR65.8m (-5.8% QoQ, +12.5% YoY). This brings 1H15 core profit to MYR135.7m, slightly above our and consensus estimates. A DPU of 2.18 sen was proposed for the quarter, which will be paid out on 28 Aug. This brings total 1H15 DPU to 4.47 sen. Earnings for the quarter weremainly underpinned by Mid Valley Megamall (MVM) and The Gardens Mall’s (TGM) stable rental reversions. However, we note that earnings declined QoQ due to the implementation of the goods and services tax (GST). Based on our recent check with management, occupancy rates remain healthy at close to 100% for both MVM and TGM.

Latest update. We believe IGB REIT will continue to benefit from the fruition of its recently-completed major asset enhancement initiatives (AEIs) in 2014, which included the reconfiguration of r etail space in MVM’s South Wing’s third floor and North Wing’s ground floor. Management stated in its 2Q15 announcement that Retail Group Malaysia (RGM) observed, in general, sales declines of up to 50% for all retail sb-sectors such as grocery, fashion, fashion accessories and electrical appliances, following the GST implementation. However, the REIT believes that the effect is temporary as consumer confidence isaffected not only by the GST, but also by the weakening MYR, which has caused consumers to delay some of their purchases. Although retail sales could be under pressure in the short term, management reiterated that it will continue to focus on enhancing its tenant mix and rolling out more AEIs to boost shopper traffic in the malls.

Forecasts. Unchanged.

Still NEUTRAL. We maintain our NEUTRAL call and DDM-based TP of MYR1.40. Althouh we expect slower retail sales growth for the next few quarters given uncertain economic conditions, we believe that overall growth should remain stable. Furthermore, IGB REIT’s dividend yield remains attractive at above 6%.