• Maintain NEUTRAL and DDM-derived MYR2.12 TP, 3% downside. IGB REIT’s 9M24 results were in line, with stable margins and rental income growth. The REIT should continue to record steady earnings growth, backed by its fully-occupied properties, but we remain NEUTRAL on the stock as we think its prospects have been priced in. The potential acquisition of Mid Valley Southkey Mall could prove to be a rerating catalyst given the mall’s positioning in the vibrant Johor market.

• Results in line. 3Q24 core profit of MYR92.7m (+5% QoQ, +4% YoY) brought 9M24 earnings to MYR283.7m (+6.5% YoY). This made up 74% of our and Street full-year estimates. On a cumulative basis, revenue improved 5% YoY, reflecting the mall’s healthy rental reversions, while NPI margin remained stable at 74.4% (9M23: 74.6%). The REIT declared a DPU of 2.68 sen for the quarter (9M24: 8.20 sen, 9M23: 7.77 sen).

• Steady rental rates. Mid Valley Megamall (MVM) and The Gardens Mall (TGM) remained fully occupied in the quarter. Gross monthly rental income (including turnover rent) for MVM grew to MYR18.45 psf (2023: MYR16.28 psf) boosted by the reconfiguration of space previously occupied by an anchor tenant. The higher-end TGM recorded a more moderate increase in rental rates at MYR15.65 psf (2023: MYR15.59 psf).

• Outlook. IGB REIT has completed the reconfiguration of a space previously occupied by an anchor tenant in early August, spanning 200k sqf or c.10% of MVM’s NLA. The space is now occupied by smaller specialty tenants with higher rental rates. The REIT will continue to be proactive in its asset enhancement initiatives to maintain the mall’s competitiveness. Looking ahead, management is guiding for mid-single digit rental reversions. We also do not foresee any significant downside risks as most of its footfall is made up of domestic shoppers.

• Earnings estimates. As results are in line, we keep our earnings forecasts unchanged. Our TP incorporates a 0% ESG premium/discount based on our in-house methodology. We think IGB REIT’s upside is limited at the current juncture, with the stock trading at 1.9x P/BV, well above the historical mean of 1.38x.

• Key risks to our call include stronger/slower-than-expected economic performance, higher/lower-than-expected rental reversions, and higher/lower occupancy rates

Source: RHB Securities Research - 29 Oct 2024