IGB REIT seen strong with first-class assets, solid balance sheet
IGB Real Estate Investment Trust
(Jan 24, RM1.80)
Maintain hold with an unchanged target price (TP) of RM1.74: IGB Real Estate Investment Trust (REIT) reported a solid set of results — 2018 net property income (NPI) grew by 3.4% on the back of higher revenue (+2.1%) and lower operating costs (-1.3%).
Its 2018 realised net profit, however, grew by a mere 0.1% to RM303.8 million due to the absence of a one-time write-back of interest booked in third quarter of financial year 2017 (3QFY17).
IGB REIT continues to enjoy high occupancy of approximately 99%, and a positive rental reversion has translated into a commendable 2.6% growth in gross rental income.
Overall, the results are within our expectations but a tad below consensus expectations (2% short).
IGB REIT declared an income distribution of 2.28 sen for 4QFY18, bringing the full-year distribution to 9.19 sen (-1% year-on-year [y-o-y]).
Sequentially, IGB REIT’s 4QFY18 realised net profit fell by 0.4% quarter-on-quarter (q-o-q) to RM75.5 million due to higher property expenses (+9.6% q-o-q), despite a seasonally higher revenue of RM137.2 million (+2.6%).
In tandem, management has declared a lower 4QFY18 distribution per unit of 2.28 sen (3QFY18: 2.29 sen).
We tweaked our FY19 to FY20 estimate earnings per share forecasts by -0.2% after incorporating the 2018 financial statements while maintaining our “hold” rating and TP of RM1.74.
While we like IGB REIT for its first-class assets, strong balance sheet and exciting asset acquisition outlook (that is Southkey Megamall in Johor Baru), the positives are, in our view, largely priced in.
At a 2019 estimate dividend yield of 5.3%, valuation is within its historical trading range (though at a slight premium to peers) and looks fair considering its first-class assets and solid management track record.
Upside risks include higher-than-expected retail spending; downside risks include unexpected hike(s) in the interest rate. — Affin Hwang Capital, Jan 24
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