Brokers Report: IGB - Lifted by One-off Gain

Maintain outperform recommendation with target price (TP) of RM4.80

IGB Corporation delivered a markedly higher net profit of RM148.1m in 3QFY16 (+228.4% YoY, +173.8% QoQ), due primarily to a one-off gain of RM136.2m from the disposal of its 65%-owned MiCasa Yangon. YTD, the Group registered RM245.0m in net profit (+47.9% YoY). After stripping out the one-off gain, the net profit YTD is estimated at RM174.3m, which was marginally above our expectations but below consensus, constituting 80% and 68% of respective full year estimates. The better than expected performance was driven mainly by the retail and hotel divisions. As such, we adjust our FY16 estimates upwards by 42%, after imputing the one-off gain from the asset disposal. Maintain Outperform and RM4.80 TP, which is based on 30% discount to our RNAV estimate, as we continue to like the strong cash flow generative abilities of the company and believe that the stock is under-appreciated despite its embedded value, evidenced by its recent asset disposal which raised an estimated RM1bn (vis-à-vis market cap of c.RM3bn).

• Investment assets. The Group’s earnings remain resilient, with c.80% of the operating income (ex- one-off gain) coming from rental income of its offices and retail assets. Weak performance from property development and property investment (commercial division) was mitigated by higher contributions from other divisions such as the property investment (retail division), hotel and investment divisions. For property development, it has launched the “Stonor 3” project in October 2016, with c.30% sold so far. For offices, the occupancy rates at 4 office towers in Mid Valley City are above 90% while Centrepoint North is still unchanged from 2Q with c.50% taken up. Other assets such as Menara Tan & Tan and Plaza Permata’s occupancy rates were also stable at more than 80%. Hotel division’s revenue improved, with the addition of 4 new hotels last year such as the 210-room Cititel Express Ipoh, the 234- room Cititel Express Penang, the 415-room Wembley Penang and the 280-room Tank Stream, Sydney.

• Pipeline projects. The key project for IGB is a mixed development in London which originally had RM4.2bn in GDV (based on old building plans) but is now improved to RM9n with a higher plot ratio. The project is now slated to be launched by end-2017 from 2H2016 due to slower than expected approvals. As for its 5.8-acre project in Bangkok, Thailand, the Group is still exploring the design for the project but based on the old design of building 2 blocks, the GDV is estimated to be RM800m. Similar to 18Medini (RM2bn GDV mixed development located in Zone A), the project will only be launched once the market condition is better. Separately, we understand that IGB’s new mall in Johor i.e. Mid Valley Southkey (Phase 1; 1.5m sf NLA) is expected to be unveiled in 2H2018. As for Southpoint Tower in Mid Valley City, the project is expected to be completed in Apr 2017. We understand that it has secured an anchor tenant, taking up 4 floors and expects 70%-80% occupancy upon completion.

Source: PublicInvest Research - 24 November 2016