An official blog in I3investor to publish research reports provided by RHB Research team.
All materials published here are prepared by RHB Investment Bank Bhd. For latest offers on RHB Invest trading products and news, please refer to: http://www.rhbinvest.com
RHB Investment Bank Bhd Level 3A, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia
Maintain BUY, new MYR1.85 TP from MYR1.92, 16% upside and c.6% yield. Results were broadly in line with consensus, with IGB REIT reporting a strong 2Q attributed to the country’s economic reopening and festive celebrations. We continue to like the REIT for its solid recovery prospects, which is backed by fully tenanted retail assets and a high proportion of turnover rent.
Within expectations. 2Q22 core profit of MYR83.5% (-2% QoQ, +81% YoY) brought 1H22 earnings to MYR169m (+92% YoY), which is at 55% of our and consensus estimates. Despite 2Q typically being a seasonally slower quarter, the strong performance was attributed to the full reopening of the economy, as well as the Eid festivities that boosted retail sales. A DPU of 2.45 sen was declared for the quarter (1Q22: 2.51 sen). The performance during this quarter was similar to pre-pandemic levels, with revenue and net profit making up 99% and 107% of 2Q19’s numbers.
Benefitting from an improving retail outlook. IGB REIT’s recovery this year remains on track with marginal rental support provided to tenants during the current quarter – this is thanks to the improved retail environment. We continue to like the REIT as a recovery proxy, given its largely domestic profile and big turnover rent portion. We think there is still room to grow – management guided that turnover rent portion remains below pre-pandemic levels of 12-15%. While the inflationary environment is a key downside to retail performance – as customers’ purchasing power may weaken – we think retail sales in 3Q may still be boosted by the remaining effect of the Employees Provident Fund savings withdrawal.
Positive reversions next year? Occupancy rates remains a non-issue for the REIT, with both Mid Valley Mall (MVM) and The Gardens Mall (TGM) remaining at close-to-full occupancy. Most of the tenancies up for expiry in FY22 have been renewed, with only 15% and 37% of leases up for expiry of MVM and TGM’s NLA still due for renewal. While we do not expect positive rental reversions this year, as tenants’ recoveries remain uneven, we are hopeful that reversions could be positive next year if tenant sales continue to be strong. The Retail Group Malaysia has revised upwards the retail industry’s growth rate for 2022 to 13.1% from 6.3% on the back of 2Q22’s strong retail sales numbers.
Maintain BUY. We raise our FY22F earnings by 5% but dial back our FY23F-24F earnings by -3 to -4% to account for the inflationary outlook. We also adjust our cost of equity assumptions to incorporate the higher interest rate expectation. Our TP incorporates a 2% ESG premium, given the REIT’s excellent scores in the environment and social pillars.
A key risk to our call is a slower-than-expected economic recovery.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....