• NEUTRAL, new MYR0.18 TP from MYR0.23, 9% expected total return. Our TP is based on a higher discount to RNAV of 80%. COVID-19 has halted construction on some I-BHD projects, putting launches at risk of being delayed. While we were previously optimistic on Central i-City’s ability to rake in crowds to the township, current circumstances revolving around the Movement Control Order (MCO) have led to muted shopper traffic – although we believe this is a temporary setback for an otherwise flourishing mall.
• COVID-19 puts the brakes on projects. Since our last research note on the stock in February, take-up rates for Hill 10 Residences (launched in FY17) and 8 Kia Peng (launched in FY16) have stayed at 93% and 26% – likely due to COVID-19 and the MCO. Construction progress for 8 Kia Peng now stands at 95% (Dec 2019: 87%), which puts it on track to be completed as planned, within 1H20. However, we are cautious on the halt in its construction progress, as the resumption of activity depends on approvals from the Government, which are still pending at the time of writing. While management is somewhat still optimistic on the launch of Hill 11 (GDV: MYR278m), which is scheduled for 2H20, we reiterate our cautious stance.
• Mixed challenges for the investment arm. Management is still exploring and discussing its next steps on the Central i-City Shopping Mall (total NLA: c.1m sqf, MYR8 psf). Based on our channel checks with our colleague in Bangkok, Central Pattana (CPN TB, BUY, TP: THB54.00) has been providing rebates of 10-50% to the tenants of its malls (which include i-City). Management confirmed that rebates have indeed been given to tenants, in the first phase of the MCO (18-31 Mar). Meanwhile, the occupancy rate in parking spaces has been stable, given the steady seasonal passes. While the completion of the Double Tree by Hilton hotel in i-City is expected to be on schedule, there may be a delay in its opening.

• Looking beyond present hurdles. The group has no plans to change its 30% dividend payout policy. Management is adopting innovative measures such as developing the i-City Super App, in line with the Selangor state’s vision of making i-City the focal point of its Golden Triangle. The application is intended to provide township residents with relevant updates relating to the township. The Corporate Tower (GDV: MYR230m, completed in Dec FY19) has been taking in an encouraging number of enquiries, despite the minimal progress in its take-up rate, to date. With its strategic location of being outside the central business district, management is confident in corporations’ interest in building recovery centres within the area, particularly from financial institutions.

• We cut FY20-22F earnings by c.3-14% as launches are expected to be delayed even further. As we increased our discount to RNAV to 80% from 75%, our TP drops to MYR0.18 from MYR0.23.

Source: RHB Securities Research - 12 May 2020