Results

1H13 core PAT was RM100m, making up 49% of both HLIB and consensus estimates.

Deviations

None

DPU

1.33 sen DPU was declared in 2Q13, bringing YTD DPU to 2.74 sen, or 40% of our 6.82 sen FY13E DPU forecast.

Highlights

Qoq rise in rental income. Total revenue rose 5.6% qoq to RM107m in 2Q13, driven by 4.7% qoq rise in gross rental income. This was mainly attributed to higher percentage rent for the quarter.

NPI rose 2.1% qoq, as operating expenses rose 13.1% qoq due to a 24.2% rise in maintenance expenses.

As for future acquisitions, we opine that the Sponsor pipeline is long-dated and limited, as we expect the Southkey development in Johor to take more than five years to be ready for injection into IGB REIT.

Risks

High portfolio concentration, with only two malls; highly sensitive to a downturn in consumer spending.

Forecasts

Unchanged. We forecast EPU growth of 6.4-7.5% for FY13-14 with the main engine of growth to come from The Gardens Mall, with 53% of its NLA up for renewal in FY13.

Rating

We still like IGB REIT, as we believe that its discount to CMMT remains unjustified, given the similar nature of both their asset portfolios, i.e. having a pure focus and exposure to Malaysian retail assets.

Given that IGB REIT trades at a higher yield than CMMT and Pavilion REIT, it remains our top pick in the M-REIT sector.

Valuation

We value IGB REIT based on net DY, with the closest peers being CMMT and Pavilion REIT (“pure play” specialists in the Malaysian retail scene).

Given the subdued sentiment in the property sector and narrowing spread, we raise our target yield for IGB REIT from 4.5% to 5.0%, in line with our target yield for CMMT.

Therefore, our TP for IGB REIT is now reduced from RM1.52 to RM1.36, but we still maintain a BUY call on IGB REIT, given total return still exceeds 10%.

Source: Hong Leong Investment Bank Research - 31 Jul 2013