IGBREIT's FY24 results and distribution are within expectations where earnings were slightly pressurised by higher refurbishment costs in Mid Valley. New higher-yielding tenants who replaced spaces surrendered by Metrojaya will continue to support rental growth for the group in FY25. Entering CY25, we believe we are one year closer to the injection of Mid Valley Southkey into the REIT. We fine-tune our forecasts following model updates, raised TP to RM2.20 (from RM2.00) as we roll over our valuation base year. Maintain MARKET PERFORM call.

IGBREIT's FY24 core net profit was within expectations, making up 95% and 96% of our full-year forecast and full-year consensus estimates, respectively. The group also declared an estimated after-tax dividend of 2.3 sen, adding up to an estimated 9.6 sen YTD which is in-line with our FY24 NDPU assumption of 10.1 sen.

YoY, its full year revenue grew by 4% on higher rental income, while its net profit rose by only 3% mainly due to higher spendings on refurbishments for the reconfiguration of previously anchor-leased space (i.e. Metrojaya) and refurbishment of South entrance in Mid Valley of which cost was incurred in 4QFY24.

QoQ, 4QFY24 revenue grew by 2% but net profit dipped 8% mainly due to the abovementioned reason.

Outlook. We gathered that Phase 2 renovation in Mid Valley South entrance has just been completed. Following the recent reconfiguration of Mid Valley from Metrojaya's downsizing, we expect the affected floor space (c.10% of total NLA) that has been fully occupied by around 20 new higher yielding tenants in Nov 2024, will continue to support the rental growth in the year ahead for IGBREIT. Given that refurbishment works have been completed in Mid Valley KL, we believe the group is now able to focus on the potential injection of Mid Valley Southkey into the REIT in the year ahead.

Forecasts. We fine-tune our earnings forecast by -4% for FY25F as we incorporate FY24 numbers, mainly accounting for a more modest rental growth. We also introduce our FY26F numbers.

Valuations. As we believe the group is now able to focus on the potential injection of Mid Valley Southkey into the REIT, we decided to reduce our yield spread for IGBREIT from 2.0% to 1.5% as investors are likely to reflect a premium to valuations when this development materialise. This resulted in a higher TP of RM2.20 against a rolled over FY26F NDPU of 11.5 sen.

We continue to like IGBREIT for its resilient portfolio, evident in its high occupancy rates and ability to cater to a wide range of income groups.

Maintain MARKET PERFORM. There is no adjustment to our TP based on ESG which is given a 3-star rating as appraised by us (see Page 4).

Risks to our call include: (i) higher-than-expected rental reversions, (ii) potential injection of earnings accretive assets.

Source: Kenanga Research - 24 Jan 2025