IGB REIT’s FY21 earnings likely to derail

HLIB cuts its FY21-FY22 forecasts by 7% to account for risks arising from lower revenue contribution due to MCO 2.0


THE reinstatement of the Movement Control Order (MCO 2.0) may taint IGB Real Estate Investment Trust’s (REIT) earnings visibility for its first quarter of the financial year 2021 (1Q21) despite ending FY20 on a solid footing.

RHB Investment Bank Bhd (RHB Research) analyst Loong Kok Wen said with the limited number of people allowed to travel per car and restrictions reimposed on inter-district travel, management guided that traffic footfall and tenant sales have gone down from the year-end peak of 70%-80% of pre-pandemic levels.

“With 44% of leases at Mid Valley Megamall and 40% at The Gardens Mall (TGM) up for renewal this year, we do not rule out the possibility of reversion rates remaining flattish for longer.

“Management shared that the 12% of net leasable area, left behind by Robinsons at TGM, has been getting inquiries by specialty store operators, but given the current circumstances, no timeline was set on its renovation and reopening,” Loong noted in a report yesterday.

RHB Research reiterated its ‘Buy’ call, with a new dividend discount model-derived RM1.85 target price (TP) from RM1.87.

IGB REIT’s 4Q20 core profit fell 4.2% year-on-year (YoY) to RM72.1 million, bringing the full-year figure to RM236.8 million. Loong said at 106% and 110% of RHB Research and consensus estimates, the results are deemed above expectations.

“On a quarter-on-quarter basis, revenue was up by 12.8% due to the reversal of over-provision for rental support in 4Q20, but earnings were dragged by high operating expenses for the quarter.

“On a YoY basis, FY20 revenue was down by 15.7% due to rental support during the earlier phases of the MCO,” she stated, adding that income distributed for FY20 translated to a distribution per unit (DPU) of 6.75 sen against 9.16 sen for FY19.

Hong Leong Investment Bank Bhd (HLIB) analyst Farah Diyana Kamaludin said the research house cut its FY21-FY22 forecasts by 7% to account for risks arising from lower revenue contribution due to MCO 2.0 and the high Covid count.

She noted that IGB REIT’s overall fall in profit in FY20 was mainly attributed to lower rental contribution, which resulted from the rental support given to tenants and lower car park income.

“Post-earnings adjustments, our TP fell to RM1.88 from RM2.01, based on a targeted yield of 4.5% on FY21 DPU,” she noted.

HLIB maintained its ‘Buy’ call as they continue to favour IGB REIT for its robust asset quality in prominent locations with low tourist exposure, which would drive a quick recovery post-MCO.

AmInvestment Bank Bhd also maintained its ‘Buy’ recommendation for IGB REIT but tweaked its fair value down slightly by 3% to RM2.03 from RM2.09 previously.

Its forecasts for FY21-FY22F was cut by 8% and 3% to RM293.9 million and RM323.5 million respectively, from RM318.3 million and RM332.4 million.

This is largely to reflect the impact of the MCO 2.0, which will likely lead to another round of rental support given to tenants, followed by a slower recovery.

“At our valuation of RM2.03, IGB REIT offers a potential upside of 24%. We like IGB REIT as we believe its long-term outlook remains positive given its strategically located assets in the heart of the Klang Valley and more balanced footfall pro- file,” its research report read.

Meanwhile, Public Investment Bank Bhd maintained its ‘Neutral’ call and TP of RM1.72 as it remained cautious that MCO 2.0 imposed on several states could continue to weigh on consumer sentiment in the near term.

“As such, earnings could see more downside risk due to the pandemic-related restrictions. We cut our FY21-FY22 earnings by 8% and 6% respectively, after imputing the impact from MCO 2.0,” it added.

Read our earlier report

IGB REIT’s 3Q net profit down 3.7%