KEY INVESTMENT HIGHLIGHTS

• 1QFY20 below expectation

• Earnings dragged by MCO

• Earnings forecast reduced

• Maintain NEUTRAL with a revised TP of RM1.70

1QFY20 below expectation. IGB REIT’s 1QFY20 core net income of RM68.4m came in slightly below our expectation, making up 20% of our full year estimate. The slight earnings miss was due to the lower income from turnover rent and car park since Movement Control Order (MCO) was implemented on 18th March 2020. Meanwhile, a DPU of 1.94sen was announced for 1QFY20, which was lower than DPU of 2.4sen in 1QFY19.

Earnings dragged by MCO. Core net income of IGB REIT is weaker in 1QFY20 at RM68.4m, declining by 9.2%qoq and 17.5%yoy. The weaker earnings in 1QFY20 were mainly due to lower income from turnover rent, rental support provided to tenants and lower car park income arising from Covid-19 pandemic and MCO since 18th March 2020. Note that only tenants who provide essential services are allowed to operate while parking fee is waived during the MCO period. Hence, that has led to lower income from turnover rent and lower car park income.

Earnings forecast reduced. We revised downward our FY20F earnings forecast by -32.8% as we factor in lower income from turnover rent and car park as well as lower shopper traffic in the near-term even after MCO is lifted. We also cut our FY21F earnings forecast by -6.3% as we assume more conservative positive rental reversion in view of the weaker retail backdrop.

Maintain NEUTRAL with a revised TP of RM1.70. Corresponding to the lower forward earnings, our TP for IGB REIT is revised to RM1.70 from RM1.90. Our valuation is based on Dividend Discount Model (DDM) valuation. We maintain Neutral on IGB REIT due to limited catalyst. Meanwhile, dividend yield is expected to taper to below 4% in FY20.

Source: MIDF Research - 23 Apr 2020