Fair Value : RM1.43 | Recom : Outperform (Maintained)

In line. IGB REIT’s 3Q12’s net profit of RM6.4m came broadly in line with our and consensus estimates, but was 16.4% above the IPO forecast. Although IGB REIT was established on 25 Jul 2012, contribution for the REIT was only for 11 days, as earnings only kicked in upon the completion of the acquisitions of Mid Valley Megamall (MVM) and The Gardens Mall (TGM) from KrisAssets on 20th Sept. As expected, no dividend was declared for the quarter.

Expecting a strong 4Q12. Undoubtedly, IGB REIT’s 4Q12 earnings should come in stronger given the shorter reporting period for 3Q12. Furthermore, 4Q has typically been the strongest quarter for the retail REITs, as there is a general increase in shopper traffic and retail turnover due to crowdpulling factors such as the Christmas festivities, year-end sale and yearend school holidays. We believe that these factors will contribute positively to IGB REIT’s 4Q12 earnings. We also anticipate IGB REIT to announce its first DPU distribution in 4Q12.

Neutral impact (with positive bias) on the acquisition of Carrefour by AEON. As we have highlighted in our report dated 2 Nov, we believe that the recent acquisition of Carrefour Malaysia by AEON Japan will have a minimal impact on these respective tenants’ business in MVM. Aeon BIG (the rebranded Carrefour) should be assuming the lease signed by Carrefour until the expiry of the current lease, and as such will continue to operate side-by-side with AEON. Furthermore, should there be a cannibalisation in the shopper traffic and sales between Aeon and Aeon BIG in the future, leading to the closure of Aeon BIG in MVM, the impact should be positive for IGB REIT, as it will then have a good opportunity to do a tenant-remixing exercise and bring in higher-yielding tenants, which could be a catalyst for earnings growth going forward.

Risks and concerns. These include: 1) Lack of pipeline assets; and 2) Competition from other malls.

Earnings outlook. No changes to our forecasts for now.

Investment case. We maintain our Outperform call and fair value of RM1.43 for IGB REIT. We believe that the recent pullback in unit price presents an opportunity for investors to buy into the REIT, which still gives a decent dividend yield of >4%. Overall, we remain positive on IGB REIT given its asset quality surrounded by huge population catchment and the significant growth prospects for The Gardens Mall.

Source: RHB Research - 28 Nov 2012