AmInvest Research Reports

IGB REIT - Stretched valuation with positives priced in

AmInvest
Publish date: Tue, 29 Oct 2024, 02:17 PM
AmInvest
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  • We downgrade our call on IGB REIT to HOLD from BUY as valuation appears stretched at 1.96x FY25F NAV of RM1.10/unit with the recent surge in unit price. Comparatively, Sunway REIT and Pavilion REIT is trading at a lower 1.1X FY25F NAV. We raise our (FV) to RM2.28/unit from RM2.11/unit based a lower WACC assumption of 7.7% (previously: 7.8%) in our DDM and higher average rent psf assumptions for Mid Valley Megamall (MVM). Our neutral 3-star ESG rating is maintained.
  • Our revised fair value of RM2.28/unit implies a target yield of 5.4%.
  • Results within expectations: 9MFY24 distributional income of RM303.4mil came in within expectations accounting for 79.4% of our estimate and 79.3% of consensus forecast.
  • 9MFY24 distributional income rose by 6.1% YoY contributed by higher gross revenue of 4.9% YoY. NPI increased by 4.6% YoY to RM348mil.
  • Occupancy rate remained robust for MVM at 99.97% and The Gardens Mall (TGM) at 99.95%. 3QFY24 gross revenue rose by 3.5% QoQ contributed by higher lease revenue and revenue from contract with customers. Meanwhile, NPI increased by 4.2% QoQ in the 3QFY24.
  • Average gross monthly rental income decreased slightly for MVM to RM18.45/sq ft in 3Q24 from RM19.13/ sq ft in 2Q24. This was due to the short-term impact from the reconfiguration works on the space previously occupied by Metrojaya into more than 20 new specialty stores to increase the rental yield. Reconfiguration works have been completed on 5th Aug with Metrojaya now occupying a smaller leased space at the South Court of MVM. 4Q24 is envisaged to see more tenants occupying the specialty stores with a likelihood of an improvement in rental income based on a higher average rent psf.
  • Meanwhile, the average gross monthly rental income of TGM was stable with a marginal increase to RM15.65 psf in 3Q24 from RM15.55 psf in 2Q24.
  • With stable occupancy rates of MVM and TGM, management guided a mid-single digit reversion in FY24. Tenancies due for renewals in FY24 have all been renegotiated.
  • A DPU of 2.68 sen has been proposed in 3Q24. This brings the 9M24 DPU to 8.20 sen (+5.5% YoY) resulting in a distribution yield of 5% on annualized basis.
  • FY25F distribution yield decent at 5.7%. The distributional yield now offers a lower spread of 181bps from the 10-year MGS yield of 3.89% after the increase in unit price.

Source: AmInvest Research - 29 Oct 2024

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