IGB Corporation - Building a megamall in Johor BUY

- It was reported in the press today that IGB intends to develop a megamall – which will have a GFA of 3 million sf – in SouthKey, Johor Bahru, which is estimated to cost RM2bilRM3bil. 

- IGB may have a 70%-equity stake in the mall with the rest to be taken up by Selia Pantai – the developer of Southkey – of which IGB will sign an MoU in the near term. This is not a surprise given that IGB has indicated it has been looking for pockets of land in Johor for development.

- To recap, South Key is a mixed commercial development spanning over 300 acres which enjoys frontage of Jalan Tebrau, Jalan Bakar Batu as well as the recently-completed Eastern Dispersal Link. It is located just five minutes away from Sultan Iskandar Custms, Immigration and Quarantine (CIQ) complex.

- We view this positively because:- (1) we believe the mall would be a success given the area’s sizeable catchment population of more than 120,000 and the lack of quality malls within it. 

- At present, the total NLA in Johor Bahru is estimated to be at 11.6 million sf with an average occupancy rate in excess of 80%.  In the pipeline includes a lifestyle mall (GFA: 1mil sf) by Iskandar Investment Bhd located at Medini North and the redevelopment of Komtar retail mall (GFA: 0.4mil sf) in Johor Bahru CBD.

- (2) IGB is rebuilding its retail mall portfolio which would provide a new stream of income and is very much in-line with its business model of developing and growing investment properties. 

- We estimate the mall would provide an additional NOI of RM76mil p.a to IGB, assuming an NLA of 1.5mil sf, a conservative rental rate of RM5psf and occupancy rate of 70%. 

- We continue to like IGB Corp because the group is looking at crystallising the deep value of its retail malls in Mid-Valley City – triggered by high implied capital values. The group would likely to follow up with an office and hospitality REIT subsequently. Our fair value is maintained at RM3.50/share.

Source: AmeSecurities