This article first appeared in The Edge Financial Daily on January 25, 2019

IGB Real Estate Investment Trust
(Jan 24, RM1.80)
Maintain hold with an unchanged target price (TP) of RM1.74: IGB Real Estate Investment Trust (REIT)  reported a solid set of results — 2018 net property income (NPI) grew by 3.4% on the back of higher revenue (+2.1%) and lower operating costs (-1.3%).

IGB REIT continues to enjoy high occupancy of approximately 99%, and a positive rental reversion has translated into a commendable 2.6% growth in gross rental income.

Overall, the results are within our expectations but a tad below consensus expectations (2% short).

IGB REIT declared an income distribution of 2.28 sen for 4QFY18, bringing the full-year distribution to 9.19 sen (-1% year-on-year [y-o-y]).

Sequentially, IGB REIT’s 4QFY18 realised net profit fell by 0.4% quarter-on-quarter (q-o-q) to RM75.5 million due to higher property expenses (+9.6% q-o-q), despite a seasonally higher revenue of RM137.2 million (+2.6%).

In tandem, management has declared a lower 4QFY18 distribution per unit of 2.28 sen (3QFY18: 2.29 sen).

We tweaked our FY19 to FY20 estimate earnings per share forecasts by -0.2% after incorporating the 2018 financial statements while maintaining our “hold” rating and TP of RM1.74.

While we like IGB REIT for its first-class assets, strong balance sheet and exciting asset acquisition outlook (that is Southkey Megamall in Johor Baru), the positives are, in our view, largely priced in.

At a 2019 estimate dividend yield of 5.3%, valuation is within its historical trading range (though at a slight premium to peers) and looks fair considering its first-class assets and solid management track record.

Upside risks include higher-than-expected retail spending; downside risks include unexpected hike(s) in the interest rate. — Affin Hwang Capital, Jan 24