3Q15 results came in above estimates. Upgrade to BUY with a revisedDDM-based TP of MYR1.50 (from MYR1.40, 15% upside). DPU grew 6.3% YoY on the back of positive rental reversions and lower property expenses. Despite the current challenging retail environment, management expects consumer confidence to return from 4Q15 onwards. We expect earnings to remain stable going forward.

Above expectations. IGB REIT registered 3Q15 core profit of MYR65.1m (-1.1% QoQ, +8.3% YoY). This brings 9M15 core profit to MYR208.5m, above our and consensus estimates. A DPU of 2.14 sen was proposed for the quarter, which will be paid out together with its 4Q DPU. This brings total 9M15 DPU to 6.61 sen. 3Q15 earnings weremainly underpined 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). Occupancy rates remained healthy at close to 100% for both MVM and TGM, based on our recent check with management.

Latest update. Management stated in its 3Q15 announcement that Retail Group Malaysia (RGM) observed that, in general, sales for all retail sub-sectors such as grocery, fashion, fashion accessories and electrical appliances saw a decline, following the GST implementation. However, the REIT believes that the effect is temporary as consumer confidence is affected not only by the GST, but also by the weakening MYR, which has caused consumers to delay some purchases and avoid buying imported goods. Although retail sales could be under pressure in the short term, we believe IGB REIT will likely continue to benefit from its major asset enhancement initiatives (AEIs) which were completed in 2014, including the reconfiguration of retail space in MVM’s South Wing’s third floor and North Wing’s ground floor.

Forecasts. We raise our FY15F earnings by 10.9% due to better net property income (NPI) margin in FY15.

Upgrade to BUY. Given the 15% upside post-earnings revision, we upgrade our call to BUY (from Neutral) with a revised DDM-based TP of MYR1.50 (from MYR1.40). Although we expect retail sales growth to remain challenging in the next few quarters amid uncertain economic conditions, we believe that overall earnings growth should remain stable. Furthermore, IGB REIT’s dividend yield remains attractive at above 6%.