IGB Berhad (IGB) registered a commendable quarter, after netting 3QFY23 profit of RM58.0m (+21.3% YoY, -48.2% QoQ) due to improved results from most business units except property development. Excluding foreign exchange losses of RM14.2m, Group core net profit is estimated at about RM176.2m, or 71% of our full year estimates. We deem it as in line as we expect the positive earnings momentum to continue. Nonetheless, we adjust our FY23/FY24/FY25 upwards slightly by 0.3%/1.5%/2.2% after revising our margin assumptions. An interim dividend of 5.0sen per ordinary share and a special single-tier dividend of 2.0sen per ordinary share was declared. Given that the stock has surpassed our TP, we downgrade our Neutral call to Underperform, with TP unchanged at RM2.00, pegged at c.40% discount to NTA (or at 10-year discount to PBV).

• Revenue from retail assets (via IGBREIT) rose 9.4% YoY YTD to RM445.8m while Group net property income (NPI) increased 5.7% YoY to RM332.6m. Profit after tax rose 69.7% YoY to RM427.9m. The higher total revenue and NPI were mainly due to the higher rental income received while higher profit after tax was mainly due to the higher rental income and the net fair value changes of RM161.8m. Both assets in the portfolio are still fully-occupied with rental income rising in tandem with the improved tenants' sales. We understand that average gross monthly rental income for Mid Valley Megamall is now at about RM16.26psf (from RM16.27psf in 2QFY23 and RM15.28psf in FY22). Meanwhile, The Gardens Mall’s average rent increased to RM15.43psf from RM15.29psf in 2QFY23 (visa-vis RM13.39psf in FY22). Separately, The Mall, Mid Valley Southkey, Johor Bahru reported total gross revenue and PBT of RM57.7m (3QFY22: RM41.1m) and RM19.8m (3QFY22: RM6.9m), an increase of c.40% and 187% respectively, due to higher rental income.

• Property Investment – Commercial division via its IGB Commercial REIT reported gross revenue growth of 12% YoY to RM158.2m for the 9MFY23, while NPI has also improved by 10% YoY to RM94.9m, mainly contributed by higher average occupancy rate across the properties. However, the increase was partially offset by higher finance cost, resulting in only a marginal increase in profit before taxation. The occupancy rate and average rental rate of the investment properties were 80.9% (from 74.9%) and RM6.24psf (MR6.17psf). As for the Hotel segment, revenue in 3QFY23 rose 48% YoY to RM68.8m due to higher occupancy rates and average room rates for all hotels in the Group. Management is expecting its hotels to recover further, underpinned by the reopening of the 390-room Boulevard hotel on 31 August 2023 and the full year contribution from St. Giles Southkey hotel that has opened for business on 31 August 2022. Elsewhere, it also has embarked on several refurbishment plans throughout 2023.

Source: PublicInvest Research - 29 Nov 2023