• Maintain NEUTRAL with a lower TP of MYR0.36 from MYR0.40, 6% upside plus c.3% FY19F yield, based on a 70% discount to RNAV. We remain cautious on the stock, given the lack of property launches YTD. However, we see potential upside from its investment properties – Central I-City Mall, which commenced operation in March 2019, the upcoming Double Tree Hotel as well as the Office Tower slated for completion in 2021.

• Central I-City Mall has commenced operation in March 2019 with 1m sqf of net lettable area (NLA) located in I-City, Shah Alam. The mall is a 40:60 joint development project between I-BHD and one of Thailand’s retail property developers, Central Pattana (CPN TB, BUY, TP: THB93.00). CPN is Thailand's largest and most sophisticated developer of retail property, with 32 shopping centres in Thailand. With the experience and expertise of CPN, the mall has managed to attract quality tenants such as Sogo, Jaya Grocer and TGV Cinemas. On our visit to the mall, we were impressed with the design and architecture of the mall, whilst the size of the shopper crowd was encouraging especially during the weekend.

• Redeemable Convertible Unsecured Loan Stocks (RCULS) extension. Last Friday, management received the green light from its shareholders for a MYR201m RCULS A and B that is maturing in August 2019. Both RCULS are extended for three years at 5% pa. We believe none of the MYR264m RCULS A or MYR138m RCULS-B will be converted into I-Bhd shares, given the group just obtained the approval for a RCULS extension.
• Proposed rights issue. Meanwhile, the group proposed a rights issue to raise gross proceeds of c.MYR150m. The proceeds shall be allocated to fund the construction of I-Bhd’s investment property 8 Kia Peng, the corporate office tower and Double Tree Hilton, as well as its on-going property development project. The proposals are expected to be completed in 4Q19. Management has guided that the group would procure undertakings from the major shareholders Sumurwang SB and Sumur Ventures SB, representing c.66.7% of the issued share capital, with a commitment of c.MYR100m to the rights issue.
• Keep NEUTRAL and trim down our TP to MYR0.36 from MYR0.40, after including changes in the enlarged share base from the out-of-money RCULS and the new rights issue. Our TP is based on a 70% discount to RNAV. We stay NEUTRAL as the outlook for the property market will likely remain challenging. Upside risk include higher than expected earnings from the Central Plaza Mall, while downside risk include further delays in new launches.

Source: RHB Securities Research - 19 Aug 2019