• Maintain NEUTRAL, new DDM-derived MYR2.19 TP from MYR2.12, 0% upside, 5% FY25F yield. IGB REIT's FY24 results were broadly in line with expectations, with a moderate YoY increase in earnings from a high base. For FY25, management is maintaining a mid-single digit rental reversion guidance. We retain our NEUTRAL call, as the upside is limited at this juncture - although the potential acquisition of Mid Valley Southkey Mall could bring about a rerating catalyst.
• Results review. 4Q24 core profit of MYR85.5m (-8% QoQ, and YoY) brought FY24 earnings to MYR369.7m (+2%), which is broadly in line with estimates - at 96% of our and Street forecasts. 4Q24 revenue was flat YoY, partly due to the high base in 4Q23, but NPI dropped by 6% YoY as the REIT recorded higher maintenance and reimbursement (employee bonuses) costs in the quarter. Interest expense remained flat as 100% of the REIT's borrowings are on a fixed rate. YTD revenue grew by 4% YoY with positive rental reversions, but NPI margins were slightly lower at 73% (FY23: 74%) due to the aforementioned cost increases. The REIT recorded a DPU of 10.7 sen for FY24 (FY23: 10.47 sen).
• Mixed trend for rental rates. Mid Valley Megamall (MVM) and The Gardens Mall (TGM) remained fully occupied. Gross monthly rental income for MVM grew to MYR18.10psf (FY23: MYR16.28psf), but TGM had a lower gross monthly rental income of MYR14.94psf (FY23: MYR15.59psf) due to lower turnover rent compared to a high base in FY23.
• Outlook. While IGB REIT completed the major reconfiguration exercise in MVM in Aug 2024, we should only see the full-quarter impact of this asset enhancement initiative (AEI) in 1Q25, with major tenants only opening their doors in mid-Dec 2024 and early Jan 2025. So far, the REIT does not have any significant AEIs planned, but it will continue to be proactive in refreshing its offerings to maintain the mall's competitiveness.
• Earnings estimates. Post results, we lower FY25-26F earnings by 2%, and introduce our FY27 forecasted net profit of MYR432m. Our TP ticks up to MYR2.19 as we have adjusted our longer-term rental reversions assumption. Our TP also includes a 0% ESG premium/discount, based on our in-house methodology. We think IGB REIT's upside is limited at the current juncture, with the stock trading at 1.9x P/BV (historical mean: 1.38x) and offering a smaller yield of 5% compared to peers. Key upside risks to our call include stronger-than-expected economic growth, higher-than-expected rental reversions, and higher occupancy rates. The opposite of such circumstances constitute downside risks.

Source: RHB Research - 24 Jan 2025