Stronger recovery trajectory in 1QFY22
? 1QFY22 results were above expectations; core net profit grew 49% yoy.
? NPI margin stayed on an uptrend qoq, backed by improving operating
conditions and expected stronger retail sentiment in the coming quarters.
? Add retained with a higher TP (FY22-24F dividend yields of 5.2-6.4%).
1QFY22 results above expectations; core net profit surged 49% yoy
IGB REIT’s 1QFY22 core net profit made up 30-32% of our and consensus full-year
forecasts. The results surpassed expectations, underlining a sustainable recovery as a
result of the easing of Covid-19 SOPs and improvement in consumer/retail sentiment. The
key culprits for the deviation were: 1) Stronger-than-expected rental and car park income,
2) Further scaling back of rental assistance/rebate to only selected tenants and 3) Positive
impact of Chinese New year (CNY) festivities on retail sales and footfall for both Mid Valley
Megamall (MVM) and The Gardens Mall (TGM) – this helped to mitigate the negative
impact of the Omicron w ave. 1QFY22 revenue rose 34.5% yoy (+12.1% qoq) but net
property income (NPI) surged 73% yoy with NPI margin of 80%, higher than our forecast
of 68%. As a result, core net profit grew 49.2% yoy (+20.3% qoq) to RM80.1m (excluding
RM5.3m writeback of trade receivables). IGB REIT declared a DPU of 2.5 sen, 33% of our
full-year forecast of 7.4 sen.
NPI margin continues its uptrend; high occupancy rates for malls
The government’s announcement of a further easing of Covid-19 SOPs should bode well
for retail mall premises, particularly for flagship neighbourhood malls like MVM and TGM –
backed by average occupancy rates of close to 98-99% (higher than the retail sector’s end 2021 average occupancy rate of 72%). The group’s 80% NPI margin in 1QFY22 (4QFY21:
78%) represents its highest level since the pandemic began in 1Q20 and is reflective of
the substantial scaling back of rental assistance, which w e expect to diminish in the coming
quarters. We still expect rental reversion to remain in slightly negative territory in FY22F
(FY21: negative single-digits on average) as, despite the vibrancy of the retail scene and
stronger footfall, w e believe tenant retention will remain a priority. In terms of the FY22F
lease expiry profile, 24%/45.4% of MVM’s/The Garden’s NLA are due for renewal.
Top pick for retail sector recovery; TP raised to RM1.90
We raise FY22F revenue by 1% to reflect diminishing rental rebates and stronger car park
income, though FY23-24F revenues are intact. We revise up NPI by 9-9.4% for FY22-24F
on the back of higher NPI margin assumptions of 73-74% (previously 68% for FY22-24F).
We raise our DPU forecasts by 9.7-9.9% to 8.1 sen/9.5 sen/10 sen in FY22F/23F/24F,
which increases our DDM-based TP to RM1.90 (COE of 5.6%). Retain Add rating, backed
by dividend yields of 5.2-6.4%. IGB REITs flagship malls’ strong neighbourhood appeal
positions them well for a robust recovery in the quarters ahead. A key upside risk to share
price is further easing of SOPs. Downside risk: subdued tenancy renewals with negative
rental reversions