• Keep BUY, new DDM-derived MYR1.98 TP from MYR1.93, 14% upside and c.6% yield. FY23 results were in line with our expectations, with IGB REIT recording strong rental reversions YoY, offsetting higher utility costs from the hike in electricity tariffs. We continue to like the stock as a strong defensive play due to its fully occupied malls, and higher-than-average proportion of turnover rent.

• Results in line. 4Q23’s core profit of MYR92.9m (+4.5% QoQ, +10.7% YoY) brought FY23 earnings to MYR359.3m (+6.9% YoY). This is in line with expectations at 101% and 99% of ours and Street’s estimates. Revenue improved +6% QoQ during the seasonally stronger quarter – boosted by the REIT’s high portion of turnover rent. NPI margins were marginally lower at 74.1% (FY22: 75.5%) due to the higher utility expenses for the year, but IGB REIT was shielded from the sharp rise in Overnight Policy Rate as its borrowings are 100% on fixed rate (interest expense +1.3% YoY). A declared DPU of 2.7 sen in 4Q23 led to a FY23 DPU of 10.47 sen (FY22: 9.86 sen).

• Higher rental rates. For FY23, Mid Valley Megamall’s (MVM) gross monthly rental income stood at MYR16.28 psf, a 6.5% improvement YoY, while The Gardens Mall’s (TGM) rental rate rose 16.4% to MYR15.59. The high growth for TGM reflects the lower base during the pandemic as it is the higher-end mall in IGB REIT’s portfolio. Excluding turnover rent, management guided that the base rent reversions were around mid-single digit, and is guiding a similar range for FY24. We think the guidance is achievable as both malls remain fully occupied, although we are keeping an eye out on the impact of the High Value Goods tax which may limit the upside to gross turnover rent, especially on TGM (31% of FY23 revenue) as it is positioned as the higherend mall compared to MVM.

• No news yet on Mid Valley Southkey injection. We think the acquisition of Mid Valley Southkey would be a strong catalyst for the REIT, especially with the positive news flow surrounding Johor and Singapore. It has been four years since the mall opened on Apr 2019, so any injection to the REIT should be sooner rather than later. However, details on a timeline remains elusive.

• Maintain BUY. We make some housekeeping adjustments to our FY24-25 forecasts and introduce our FY26 earnings forecast of MYR412m. Our TP incorporates 0% ESG premium. Downside risks include worse-thanexpected economic conditions, slowdown in retail sales, and intensifying competition.

Source: RHB Securities Research - 31 Jan 2024