IGB Berhad (IGB) started FY23 with a net profit of RM56.1m (+31.2% YoY,  >100% QoQ) in the first quarter, which is in line with our and consensus expectations. The Group’s 1QFY23 net profit constituted about 24% and 26%  of our and consensus full year estimates respectively. Group revenue rose 37%  YoY due to better performance from almost all the business segments.  Correspondingly, the Group profit before tax (PBT) rose 30% YoY to RM135m.  With the current stock price exceeding our TP, we downgrade IGB from  Outperform to Neutral with unchanged TP of RM2.70, pegged at c.40%  discount to NTA, which on par with the sector average discount.

• Revenue from retail assets (via IGBREIT) rose 15.5% YoY to RM154.6m  driven by improving retail sales of tenants and higher average rent registered during the quarter. Both assets in the portfolio are still fully occupied with rental also starting to increase in tandem with the improved tenants' sales. As at 1QFY23, average gross monthly rental income for Mid  Valley Megamall is at RM16.93psf (vis-a-vis RM15.28psf in FY22), while  The Gardens Mall is getting RM15.77psf (vis-a-vis RM13.39psf in FY22).  In FY23, Mid Valley Megamall has 165 leases up for renewal (46.2% of  total net lettable area(NLA)) while The Gardens Mall has 85 leases expiring in FY23 (45.5% of total NLA). Elsewhere, The Mall, Mid Valley Southkey,  Johor Bahru reported total gross revenue and PBT of RM58.6m and  RM21.2m, or rising 54% YoY and >2x YoY respectively.

• Property Investment – Commercial division reported gross revenue and  net property income (NPI) of RM51.8m and RM8.9m respectively due to  higher occupancy rate. However, PBT is lower due to higher property operating expenses and finance costs. Average occupancy rates as at  1QYF23 for IGB Commercial REIT’s portfolio of 10 investment properties was 79.4% (from 77.5% in 4QFY22) with average rental rates at RM6.20 (RM6.18psf in 4QFY22). As for the Hotel segment, revenue increased by more than 100% YoY to RM58.5m due to significant improvement in occupancy rate and room rate in the current year quarter. The Group expects further recovery, aided by the reopening of the 390-room  Boulevard hotel in July 2023 and full year contribution from St. Giles  Southkey hotel that has opened for business on 31 August 2022.

Source: PublicInvest Research - 30 May 2023