HLIB Research downgrades IGB REIT to 'hold', cuts target price amid gloomy retail outlook

TheEdge Thu, Apr 23, 2020 11:02am - 3 years View Original


KUALA LUMPUR (April 23): Hong Leong Investment Bank Research (HLIB Research) has downgraded its call on IGB Real Estate Investment Trust (IGB REIT) to “hold” from “buy” while cutting its target price (TP) to RM1.76 from RM1.83 previously as the retail industry’s outlook remains grim in the face of the Covid-19 pandemic.

In a note, the research house said it had lowered the REIT’s earnings forecasts by 16.6%, 4%, and 3.8% for the financial year ending Dec 31, 2020 (FY20), FY21 and FY22 on the back of lower retail demand stemming from the coronavirus and subsequent measures put in place to curb its spread, such as the Movement Control Order (MCO).

HLIB Research added that IGB REIT’s 1QFY20 results came in below expectations.

“Although 1Q formed 24% of our full-year forecast, we deem this to be below expectations given likely weaker 2Q earnings ahead from [the] roughly one-month impact of the MCO,” it said.

While both The Gardens Mall and Midvalley Megamall enjoy high occupancy rates of nearly 100% due to their strategic location, the research house said it will continue to keep an eye on IGB REIT’s earnings as the pandemic and the MCO have impaired consumer sentiment and the retail industry.

“We downgrade the stock to 'hold', as outlook for retail industry remains unexciting in near term.

“To note, our TP is pegged on FY21f distribution per unit (DPU) on targeted yield of 5.1%, which is derived from two-year historical average yield spread between IGB REIT and 10-year MGS yield.

“While we favour IGB REIT for its concentration of prime retail assets as well as its strong balance sheet, we reckon that its short-term earnings will likely be impacted due to lingering concern of Covid-19 and MCO arising from rental pressure of its retailers,” the research house noted. 

IGB REIT’s 1QFY20 net property income (NPI) declined 14.6% year-on-year (y-o-y) to RM88.39 million from RM103.48 million on the back of lower income due to the rental support provided to tenants and lower car park income.

Revenue fell 11.5% y-o-y to RM125 million from RM141.23 million, as rental income declined 5.2% y-o-y to RM88.47 million from RM104.38 million.

The REIT declared a DPU of 1.94 sen versus 2.40 sen in the corresponding quarter last year.

At 10.25am, IGB REIT units were trading 0.59% or a sen lower at RM1.69, giving a market capitalisation of RM6.04 billion.

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