A post-pandemic value play

■ We initiate coverage on IGBB with an Add rating and RM2.50 TP, pegged to a 75% discount to our CY22F RNAV estimate.
■ IGBB is a deep value play. Its 53.2% stake in IGB REIT is 80% higher than its current market cap of RM1.7bn; a key appeal supporting its recovery outlook.
■ Higher dividends is a new angle with attractive FY21-23F yield of 5.3-6.4%

The only real estate developer with two listed REITs

IGB Bhd (IGBB) is primarily a real estate developer which has diversified into retail and commercial assets. Its key retail assets are housed under 53.2%-owned IGB REIT (IGBREIT MK, Add, TP: RM1.88) while selected commercial assets are part of the recently listed IGB Commercial REIT (IGBCR MK: NR). IGBB’s businesses are predominantly in Malaysia, with the remaining geographical exposures located in Asia, Australia, the US and the United Kingdom (UK). We view the recovery of the property market and the monetisation of assets/spin-off into REITs as the group’s strong points.

Beneficiary of post-pandemic recovery; offering 5.3% dividend yield

We expect the group’s three core business divisions, i.e. property development, commercial assets and retail assets to stage a strong recovery in FY22F. We expect this to be anchored by: 1) improvement in consumer sentiment, 2) recovery in retail sales and footfall, 3) diminishing rental rebates, and 4) transition from work-from-home to office environment. Our 3-year (FY21-23F) EPS CAGR of 52% imputes a worst-is-over Covid- 19 scenario. Cash dividend payout surged to 10 sen in 3QFY21 (historical high) and looks sustainable in FY22-23F at 5.3% dividend yield.

Valuation mismatch? Market cap is 44% lower than IGB REIT

What IGBB lacks in trading liquidity is compensated for by the stock’s undervaluation compared to its peers, with the market potentially overlooking the fact the current market value of IGBB’s 53.2% stake in IGB REIT alone is 80% higher than IGBB’s market capitalisation of RM1.7bn. Post-listing of IGBCR in Sep, the likely injection of Southkey Mega Mall (into IGB REIT) would enhance IGBB’s value, while the RM591m proceeds from the Blackfriar land sale in 4Q21F would support new growth strategies, in our view.

Initiate coverage with an Add call and TP of RM2.50

We see deep value in IGBB as it trades at a steep 81% discount to our fully diluted (FD) CY22F RNAV of RM10/share. Initiate coverage with an Add rating and RM2.50 TP, based on 75% discount to RNAV/share, in line with the average trailing RNAV discounts of its peers under coverage. We foresee IGBB’s renewed dividend angle and likely better disclosures/engagement with investors as two key factors that could enhance its trading liquidity. Re-rating catalysts: 1) Robust qoq net profit rebound in 4Q21F, 2) Potential injection of new retail assets in IGB REIT, 3) Turnaround of the hotel sector, and 4) Investors gravitating to post-pandemic value plays. Downside risks: prolonged losses and the emergence of a new Covid-19 variant – negative for IGBB’s recovery prospects.