Investment Highlights

• We maintain our BUY recommendation for IGB REIT, but tweak our fair value (FV) down slightly by 3% to RM2.03 (from RM2.09 previously). Our valuation is based on a target yield of 4.5% over its FY22F distributable income.

• We cut our forecasts for FY21–22F by 8% and 3% to RM293.9mil and RM323.5mil respectively (from RM318.3mil and RM332.4mil), and introduce our FY23F distributable income projection of RM335.1mil. This is largely to reflect the impact of the MCO 2.0 in 1QFY21F, which will likely lead to another round of rental support given to tenants, followed by a slower recovery.

• IGB REIT reported its FY20 revenue and distributable income at RM465.2mil (-16%) and RM259.5mil (-25%) respectively, which are above expectations at 126% of our forecasts and 121% of consensus estimates. We believe the key variance came largely from faster-than-expected rental recovery.

• The decline in revenue is mainly due to the rental support provided to tenants, lower car park income and higher allowances for impairment of trade receivables arising from the Covid-19 pandemic and the various MCOs. As a result, its NPI and distributable income fell by 21% and 24% to RM316.7mil and RM259.5mil respectively.

• In 4QFY20, IGB REIT's revenue improved by 13% to RM147.5mil vs. RM130.7mil in 3QFY20, thanks to the reversal of over-provision for rental support in 4Q. However, its NPI and distributable income for the quarter declined by 5% and 6% to RM93.1mil and RM72.1mil respectively, mainly because of the higher allowances for impairment of trade receivables.

• IGB REIT proposed a distribution income of 2.08 sen per unit for 4QFY20 compared with 2.19 sen per unit YoY. This brings the total to 6.75 sen per unit for FY20, vs. 9.16 sen per unit for FY19. We have lowered our FY21–22F distribution projection to 8.3 sen and 9.1 sen vs. 9.0 sen and 9.4 sen projected previously, while projecting FY23F distribution income to be 9.5 sen. This will translate into yields of 5.1%, 5.6% and 5.8% for FY21–23 respectively.

• IGB REIT’s debt-to-asset ratio remains at 23%, which is well below the regulatory threshold of 60% (temporary increased limit from 50% up to 31 December 2022 as part of the relief measure implemented by the Securities Commission in light of Covid-19). At the current level, we believe IGB REIT still has headroom to gear up for future acquisitions.

Source: AmInvest Research - 26 Jan 2021