Analysts remain sanguine on IGB REIT’s prospects going forward

• IGB REIT said revenue for 1QFY2024 rose 5.14% to RM162.56 million against RM154.62 million registered in 1QFY2023. It expects the retail sector to record a 4% growth for the full year of 2024.

KUALA LUMPUR (April 18): Research analysts covering IGB Real Estate Investment Trust (IGB REIT) remained sanguine on the stock’s prospects after it reported a 4.79% jump in its net property income (NPI) for the first quarter ended March 31, 2024 (1QFY2024) to RM124.24 million, from RM118.55 million a year earlier, thanks largely to higher rental income.

IGB REIT said revenue for 1QFY2024 rose 5.14% to RM162.56 million against RM154.62 million registered in 1QFY2023. It expects the retail sector to record a 4% growth for the full year of 2024.

In separate notes, Hong Leong Investment Bank (HLIB) Research and Kenanga Research said IGB REIT’s results were within expectations.

HLIB said the reconfiguration works for Metrojaya (which takes up about 11% of Mid Valley’s total net lettable area) is expected to be completed by 3Q2024.

“Despite management saying that there will be short term earnings impact from this, we are not overly concerned given its transitional nature.

“With The Gardens maintaining full occupancy, management has guided positive rental reversions of mid-single digit for both malls in FY24.

“Combined with improving tourist arrivals and steady domestic consumption, we believe that IGB REIT will continue to do well for the remainder of FY24,” it said.

HLIB maintained its “buy” rating on IGB REIT with a higher target price (TP) of RM1.93 (from RM1.88).

“Our TP is based on FY25 dividend per unit on targeted yield of 6.1% which is derived from 5-year historical average yield spread between IGB REIT and 10-year MGS yield.

“We continue to like IGB REIT due to the prime location of its malls, supporting its (i) robust occupancy rates, (ii) strong and consistent positive rental reversions; and (iii) monthly rental income exceeding pre-pandemic levels,” it said.

Meanwhile, Kenanga said one of IGB REIT’s key tenants, Metrojaya, may give up part of its current floor space, as it appears to explore digital strategies.

“This potentially provides IGB REIT the opportunity to bring in higher-yielding new tenants.

“We maintain our forecasts, TP of RM1.68 and Market Perform call,” it said.

Kenanga said in the immediate term, IGB REIT could continue to see encouraging seasonal spending supported by Hari Raya festivities.

At the time of writing, IGB REIT gained 1.14% or two sen to RM1.77, with 262,900 units traded.

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