IGB Corporation - RM0.67/share accretion to IGB! BUY

- We reaffirm BUY on IGB, with an unchanged fair value at RM3.50/share based on a 22% discount to our NAV estimate of RM4.50/share.

- It was announced on Bursa that IGB’s 75%-owned KrisAssets will sell MidValley Megamall and Gardens Mall for RM4.6bil to IGB REIT. The deal values the two malls at a whopping RM1,815psf – an about 25% discount to Pavilion Mall’s valuation of RM2,400psf – and would result in a revaluation gain of RM1.3bil to KrisAssets or RM992mil (or RM0.67/share accretion) to IGB.

- We understand the acquisition of the mall will be satisfied via the issuance of 3,400 million units in IGB REIT and the balance of RM1.2bil via cash. 

- Of the 3,400 million units, 2,730 million units will be distributed to its entitled shareholders and KrisAssets has proposed an offer for sale of the remaining 670 million units via an IPO of IGB REIT, of which 469 million units will be offered to institutional funds.

- The 2,730 million units form part of KrisAsset’s proposed distribution to its entitled shareholders amounting to RM3.9bil. The remaining RM1.27bil would comprise special dividend and capital repayment 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.

- Nonetheless, IGB would need a delicate balance between a special dividend and deploying freed capital to fund development projects overseas. 

- As we have highlighted earlier, IGB is exploring development opportunities in London and Taipei, whereby we understand that IGB would require about RM1bil to fund the acquisition of a site in London.

- 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 given to its prime assets.

Source: AmeSecurities