IGB (FV RM2.87-NEUTRAL) 1QFY12 Results Review: Off to a Strong Start

IGB’s annualized 1QFY12 results were 30% and 11% above our and consensus estimates due to  the  stronger than expected performance  of  its property investment, property development and hotel divisions. The better-than-expected results prompt us to upgrade our FY12 and FY13 net profit forecasts by 23% and 25% respectively, after raising our topline forecast as well incorporating  a higher margin assumptions. We maintain our Neutral call on IGB, at a slightly higher FV of RM2.87 versus RM2.82 previously, based on 1.2x P/NTA,  which  is  equivalent  to  1.5 standard  deviation  above  its  6-year  historical mean.

Above projections. IGB recorded a net profit of RM57.4m, which accounted for about 32.5% and 12.3% of our and consensus’ FY12 net profit forecasts. The better-thananticipated results were largely attributed to the reported revenue, which came in 10.5% above our forecast,  driven by the robust numbers from the company’s property investment, property development and hotel divisions. Other than the stronger than expected topline, IGB also recorded higher than estimated margins, as EBIT margin widened from 43.6% in 1QFY11 to 51.7% during the quarter under review. Subsequently, revenue jumped 23.8% while net profit climbed 48% y-o-y.

Performance by segment. The investment property division remained the biggest contributor to the company’s topline and EBIT, making up about 53.4% and 70% of both numbers respectively. The division recorded 26% y-o-y increase in EBIT attributed to 2% and 16% y-o-y growth in revenue from Mid Valley and The Gardens respectively, as well as a 11% increase in rental income from its office buildings. Meanwhile, the hotels division saw 14% and 58% y-o-y increases in revenue and EBIT, buoyed by higher occupancy and room rates. Driven by the higher progress billing from its on-going developments, IGB’s property development division recorded whopping 226% and 460% y-o-y increases in revenue and EBIT respectively after a sluggish performance last year due to the absence of new projects.

Maintain Neutral.  With  the  better-than-expected results, we are upgrading our FY12 and FY13 net profit forecasts by 23% and 25% respectively after raising our topline forecast as well  as incorporating higher margin assumptions. We maintain our Neutral recommendation but at a  slightly higher FV of RM2.87 from RM2.82 previously, based on 1.2x P/NTA, which  is  equivalent  to  1.5  standard  deviation  above  its  6-year  historical mean.

Source: OSK188