IGB REIT's Q4 earnings came lower than expected due lower rental income, higher opex, says HLIB Research

NST Fri, Jan 20, 2023 10:38am - 1 year View Original


KUALA LUMPUR: IGB Commercial Real Estate Investment Trust's (REIT) fourth quarter (Q4) of 2022 net profit of RM13.3 million and full-year net profit of RM66.5 million came in below Hong Leong Investment Bank Bhd's (HLIB Research) full-year estimates at 90 per cent.

The bank-backed research firm said this was due to lower-than-expected rental income and higher property operating expenditure (opex).

Year-on-year (YoY) revenue remained muted (down 1.3 per cent) while property opex grew 52.9 per cent while revenue rose 8.7 per cent sequentially due to the improving occupancy rate of its properties, albeit partially mitigated by the lower portfolio rental rate.

"Meanwhile, we also saw property opex up 12.9 per cent due to an increase in maintenance expenses (up 20.0 per cent) and reimbursement costs and other opex (up 33.9 per cent)," it said.

HLIB Research noted that IGB Commercial is not spared from challenges arising from the persistent oversupply woes in the office market.

Despite the demand for office space recovering as the economy has fully reopened, the firm believes the office supply will continue outstripping demand in 2023, given the completion of several new office buildings in Klang Valley.

"However, IGB Commercial's rental income should gradually improve as its recovering occupancy rate should provide respite to overall performance.

"Also, its strategically located office properties may help cushion downside risks," it said.

HLIB Research believes that IGB Commercial's bottom line should improve in tandem with the increased contributions from its new tenants and normalisation in property opex.

The research firm downgraded its call on the stock to 'Sell' with a target price of 46 sen.

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