Performance of new hotels helps improve IGB’s earnings

IGB Corp Bhd (Oct 17, RM2.82)

Maintain neutral with an unchanged target price (TP) of RM3.00: We met management recently to get updates on ongoing projects and performance of new assets (especially  hotels).

The Southpoint Tower in Mid Valley City is now expected to be completed by the first half of 2018 (1H18) (from 1H17 previously) due to a change in product mix to one-third residential. That said, we understand that pre-leasing indications are that demand is good and the building should have no problem filling up once it is completed.

As for Mid Valley Southkey in Iskandar Malaysia, the new mall is on track to be unveiled by 2H18, with the grand opening for the mall expected on Aug 8, 2018.

As for property development, the group’s mixed-development project in London will see its launch delayed yet again, from end-2017 to 1H18, due to slower-than-expected approval for the amended planning permission.

Separately, recent disposal of few underperforming hotels and better-than-expected performance of new hotels have helped improve the group’s earnings in recent quarters. All told, we adjust our financial year 2017 (FY17) to FY19 upwards by 5%,12% and 11% respectively to account for better performance from these assets.

Additionally, the expected completion of Southpoint Tower and Mid Valley Southkey could move the group’s earnings higher in 2018 and beyond (which are not reflected in our earnings estimates yet).

Maintain “neutral” call for now with TP unchanged at RM3.00, or effectively pegged at 56% discount to our revalued net asset value estimate and on par with the cash offer from Goldis Bhd.

IGB Corp Bhd’s new mall in Johor Mid Valley Southkey is expected to be unveiled on Aug 8, 2018. Construction is progressing well and with the works already in advanced stages, the group is confident that it should be able to unveil the new mall on time.

To recap, the project has a combined gross development value (GDV) of RM6 billion, to be developed in a few phases. As for the first phase, IGB will build a mall which is said to be an improved version of the existing mall in Midvalley Megamall, Kuala Lumpur. Other phases will encompass three hotels (870 rooms), four offices and one serviced apartment (290 units) with an estimated development period of 12 years.

Separately, the completion of Soutpoint Tower in Mid Valley is now expected by 1H18. The delay, we understand, is mainly due to product mix changes to convert some office space into residential components.

The development is now slated to be launched in 1H18 due to slower-than-expected approvals. However, we understand that it has, in principle, received the nod to improve the plot ratio of the said development and hence, the expected GDV for the project is about £1.5 billion (RM8.34 billion). — PublicInvest Research, Oct 17

This article first appeared in The Edge Financial Daily, on Oct 19, 2017.

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