ANALYSTS are not ready to turn positive on IGB Real Estate Investment Trust (IGB REIT) after it posted poorer first quarter results ended March 31.
The REIT saw a lower net profit of RM68.36 mil in 1QFY20 compared with RM82.88 mil a year ago on the back of lower revenue of RM125 mil versus RM141.2 mil. It proposed a lower dividend per share of 1.94 sen for the quarter versus 2.40 sen a year ago.
MIDF Research has maintained its neutral call on IGB REIT with a revised target price (TP) of RM1.70 from RM1.90 due to its lower forward earnings since the Movement Control Order (MCO) was implemented on March 18.
“Our valuation is based on the dividend discount model (DDM) valuation. We maintain neutral on IGB REIT due to limited catalyst. Meanwhile, the dividend yield is expected to taper to below 4% in FY20,” said the research house in a note on April 23.
It also reduced the earnings forecast for FY20 by -32.8% as it factors in lower income from turnover rent and car park, as well as lower shopper traffic in the near-term even after the MCO is lifted.
“We also cut our FY21 earnings forecast by -6.3% as we assume more conservative positive rental reversion in view of the weaker retail backdrop,” it said.
MIDF Research said IGB REIT’s 1QFY20 core net income of RM68.4 mil came in slightly below its expectation, making up 20% of the full-year estimate.
Meanwhile, a distribution per unit (DPU) of 1.94 sen was announced for 1QFY20, which was lower than the 2.4 sen declared for 1QFY19.
Meanwhile, Affin Hwang Capital Research has maintained its hold call on IGB REIT with an unchanged DDM-derived 12-month TP of RM1.58.
“At a 5.1% 2021E yield, the valuation looks fair. IGB REIT is our preferred pick among the retail
REITs due to its prime assets, strong balance sheet, proactive management and low gearing ratio,” said the research house.
Affin Hwang also noted that the upside risks include a lower-than-expected impact from Covid-19 and strong pent-up demand that pushes retail sales post-MCO while downside risks would be a prolonged MCO and weaker-than-expected earnings.
“We expect IGB REIT to report weaker 2Q20 results due to the prolonged MCO period and cautious consumer sentiment. Tracking the lower earnings, IGB REIT has declared a lower 1Q20 DPU of 1.94 sen (1Q19: 2.40 sen). Its 1Q20 payout ratio of 92.5% is below the 95% in prior quarters.”
IGB REIT was 0.59% lower at RM1.69 before the midday break, giving it a market capitalisation of RM5.97 bil. — April 23, 2020
