• Still NEUTRAL, new MYR1.88 TP from MYR1.85, 9% upside with c.6% yield. Results were broadly in line with expectations, with IGB REIT reporting strong earnings from higher rental income. This offset the increase in operating expenses, with the NPI margin remaining strong at 76.7% (FY22: 75.5%). With its fully occupied malls, IGBREIT provides a solid defensive play, and we expect mid-single-digit rental reversions following the strong retail sales momentum over the past year.

• Results in line. 1Q23 core profit of MYR96.2m (+14.6% QoQ, +12.2% YoY) was broadly in line with expectations at 28% of our and consensus’ estimates. 1Q23 revenue (+4% QoQ, 16% YoY) improved from higher rental income, while NPI rose 12.2% QoQ (+10.1% YoY) mostly due to higher upgrading costs in 4Q22. While utilities expenses increased 18.8% QoQ due to the electricity tariff surcharge, NPI margin remained strong at 76.7%. A DPU of 2.80 sen was declared for the quarter (1Q21: 2.51, 4Q22: 2.50).

• Strong start. IGBREIT provides a solid defensive play, as occupancy rates remain a non-issue for the REIT, with both Mid Valley Mall (MVM) and The Gardens Mall (TGM) at full occupancy. Revenue growth has been on an upward trend, in line with the overall growth in domestic retail sales – thanks to the REIT’s mix of base and turnover rent. In 1Q23, MVM’s gross monthly rental stood at MYR16.93 psf, (FY22: MYR15.28, FY19: MYR15.03), and TGM’s stood at MYR15.77 psf (FY22: MYR13.39, FY19: MYR12.93).

• Outlook. For FY23, both MVM and TGM have c.46% of NLA up for expiry – mostly consisting of anchor tenants, so we think the non-renewal risks are limited due to the quality of the assets. Rental reversions were flattish in FY22 as tenants were given more time to fully recover from the pandemic, and hence, we expect reversions to improve to the mid-single-digit range in FY23. Impact from any interest rate hikes should be limited, as the REIT has both a low gearing ratio (25%), and almost all of its loans are on a fixed- rate basis.

• Earnings forecasts. Post results, we adjust our FY23-25F earnings by 2- 3%, increasing our TP to MYR1.88. Our TP incorporates a 2% ESG premium, based on its excellent scores in the environment and social pillars. We maintain our NEUTRAL call on the stock, as we think the upside has mostly been priced in.

• Key upside risks to our call are a stronger-than-expected retail performance and stronger rental reversions. The opposite circumstances would constitute downside risks.

Source: RHB Research - 28 Apr 2023