Price (9 Jul 2013) RM 1.31
Target Price RM 1.43
Asset injection in the medium term
South Key Mall future asset injection
Organic grow potential
Maintain NEUTRAL recommendation
South Key Mall: Recently, IGB Real Estate Investment Trust’s (IGB REIT) parent company, IGB Corporation Berhad (IGB Corp) finalised the shareholder’s agreement and sales & purchase agreement for the jointventure (JV) to develop South Key Mall in Johor Bahru. IGB Corp owns 70% equity stake in the JV.
Asset injection in the medium term: IGB Corp will try to replicate the success of Mid Valley City in the South Key Mall development. Development order of the project has been received and construction is slated to commence in 2013. The project is expected to complete in 2018/2019. The mixed development consists of hotel, residence, commercial as well as a 1.5m sq ft retail mall. Assuming there is no other acquisition, the injection of South Key Mall will increase the total NLA under IGB REIT to 4m sq ft.
Organic growth: 51% of The Garden Mall’s (TGM) total net lettable area (817K sq ft) (NLA) is due for renewal in 2013. TGM is a five year old mall and only gone through 1 rental reversion cycle. There is an obvious gap between the average rental of TGM (RM9 to RM10 psf) and Mid Valley Megamall (RM11-RM12 psf). We believe TGM will close the gap with Megamall’s rental rate. The premium TGM will be the organic growth driver in FY13.
Future is challenging: The retail market is expected to be challenging due to the completion of up-coming shopping malls. There are 5 retail malls/hypermarkets expected to be completed in 2013. Nevertheless, we believe IGB REIT will continue to maintain high occupancy rates (99.8% for Megamall and 99.5% for The Gardens @ end FY12) and rental reversion due to the superior location and size. At combined NLA of 2.57M sq ft, Mid Valley Megamall and The Gardens Mall are one of the largest retail malls in Malaysia.
Valuation: We are recommending NEUTRAL for IGB REIT with a TP of RM1.43. We arrived at our TP based on Gordon Growth Model (WACC 8.22%, Long term growth 3.45%).