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D/G to NEUTRAL from Buy, MYR1.85 TP with 5% upside, c.6% FY23F yield. IGB REIT ended FY22 on a high note, thanks to a pick-up in retail sales during the festive season. We expect the REIT to be able to capitalise on its strong momentum and record positive rental reversion in FY23. With the share price up by 12% in the past few months, we downgrade our call, as we think the positive outlook has been priced in.
Within expectations. 4Q22 core profit of MYR83.9m (+0.7% QoQ, +14.1% YoY) brought FY22 earnings to MYR336.2m (+68% YoY). This is in line with expectations, at 102% of our and consensus full-year estimates. A DPU of 2.46 sen was declared for the quarter, bringing the full-year DPU to 9.86 sen (FY21: 6.03 sen). Compared to 4Q19 (pre-pandemic), revenue and NPI for 4Q22 were higher by 6.5% and 9.9%.
Strong end to the year. IGB REIT withstood any fears of macroeconomic headwinds impacting retail sales, recording consecutively higher revenue from 2Q22. Occupancy rates remain a non-issue for the REIT, with both Mid Valley Mall (MVM) and The Gardens Mall (TGM) at full occupancy, making the REIT both a strong defensive play and well-positioned to benefit from an improvement in the outlook for retail. Due to the REIT’s high turnover rent portion, MVM’s gross monthly rental income stood at MYR15.28psf in FY22, vs MYR11.36psf in FY21 and MYR15.03psf in FY19. Consequently, its NPI margin in FY22 was at 76% (FY19: 72%), although we are forecasting it to come down, as the retail growth momentum normalises.
Rental reversion should turn positive. While rental reversion in FY22 was mostly flattish, especially as tenants were given more time to fully recover from the pandemic, we expect the REIT’s rental reversion to be positive in FY23, on the back of the strong FY22 performance. Management guided that even if tenants demand for lower base rental rates, this will be compensated by a higher turnover rent portion – with the net result expected to remain positive for the REIT. Both MVM and TGM will have c.49% of NLA up for expiry in FY23 – mostly consisting of anchor tenants.
We maintain our earnings forecast as results are in line with expectations, and we introduce our FY25F earnings of MYR373m. Our MYR1.85 TP incorporates a 2% ESG premium based on our in-house methodology. Key upside risks to our call are a stronger-than-expected retail performance and stronger rental reversions. The opposite circumstances would constitute downside risks.
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....