IGB Corporation - Good performance all round BUY

- IGB Corporation’s (IGB) 1QFY12 net profit of RM57.4mil was in-line with our and streets’ estimates, covering about 28% of full-year numbers. As expected, no interim dividend was declared.

- Core earnings showed a strong recovery QoQ, following a one-off provision of RM40mil for MidValley City’s infrastructure cost in the preceding quarter and more meaningful progress billings from ongoing developments, i.e. Seri Ampang Hilir (GDV:RM90mil) and Manor Park in Sungai Buloh. Group’s earnings may be stronger in 2HFY12 in view of the potentially stronger billings in the coming quarters. 

- As expected, the property investment unit remains as the major contributor, which saw its EBIT growing by 53% QoQ due to recent renewals at Gardens Mall – approximately 60% of the NLA. Likewise, there was a healthy growth of 48% YoY, due to a strong all-round performance, especially at its hotel division – EBIT grew by over 50% due to better ARR and occupancy rates.

- Moving forward, IGB will benefit handsomely from the listing of its two malls, i.e. MidValley Megamall and Gardens Mall via an establishment of a REIT. The malls are valued at RM4.6bil or at a whopping RM1,815psf, and would result in a revaluation gain of RM1.3bil to KrisAssets or RM992mil (or RM0.67/share accretion) to IGB.

- There will be a special dividend and capital repayment amounting to RM1.27bil, which translates into an attractive RM2.88/share. Based on IGB’s 75% stake, the company stands to get a handsome cash payoff of RM951mil or RM0.64/share.

- There is a further revaluation surplus of RM1.05bil in IGB’s under-appreciated portfolio of well-occupied office buildings (2.2 million sf), which are carried in its book at low historical costs. We believe the office REIT will be launched next year, once the retail REIT listing is done. A hospitality REIT for its hotel assets would complete the re-pricing of its assets, transforming IGB into an asset-light fee-based entity with controlling stakes in three listed asset-specific REITs.

- IGB rose by close to 20% after our upgrade in January, but has been hovering at RM2.75-RM2.80/share over the past two months given the weak sentiment in the market. We expect the stock to trade at a narrower discount – now at about 39% – given the good valuation for to its prime assets.   

Source: AmeSecurities