IGBB: Property Conglomerate Meets Expectations, Rating Downgraded to Neutral

Property conglomerate IGB Berhad reported its 2QFY25 net profit at RM75.3 million, a marginal 0.2% decline year-on-year and a 59.3% drop quarter-on-quarter, aligning with analyst expectations. For the first half of FY25, the group’s net profit reached RM164.4 million, representing 46% of full-year estimates, though a 36.9% decrease year-on-year. This year-on-year dip in profitability was largely attributed to a high base effect from a significant land sale gain recorded in 1QFY24.

Performance Review

The group’s performance was bolstered by robust contributions from its property development business and improved operational results across its various divisions. The retail asset segment, managed via IGB REIT, saw a healthy 6.8% year-on-year rise in revenue to RM160.1 million. Net property income (NPI) grew by 9.5% to RM119.9 million, with profit after taxation (PAT) increasing 13.4% year-on-year to RM92.5 million. This improvement was primarily driven by higher rental income across its portfolio. Mid Valley Megamall reported an average gross monthly rental income of RM18.72 per square foot (psf), while The Gardens Mall, with a near 99.9% occupancy rate, commanded an average rent of RM16.20 psf. The Mall, Mid Valley Southkey, Johor Bahru, also contributed positively with revenue up 9% and PBT surging 79%, largely due to higher rental income.

The Property Investment – Commercial division, operating through IGB Commercial REIT, also delivered strong results. It posted a gross revenue growth of 12.7% year-on-year to RM64.6 million, and NPI increased by 10.5% year-on-year to RM38.1 million. This was fueled by higher rental income, along with increased portfolio occupancy rates, which improved to an average of 92% in 2QFY25 from 89% in the preceding quarter, alongside higher average rental rates of RM6.46 psf.

Conversely, the hotel segment recorded a 5% year-on-year revenue increase to RM82.6 million, driven by improved occupancy rates and average room rates. However, its profit before tax (PBT) saw a slight 1% year-on-year decline to RM18.6 million, primarily due to the temporary closure of a hotel for renovations.

Analyst’s Outlook

Public Investment Bank maintained its earnings estimates for the conglomerate. However, following a positive stock reaction driven by the proposed asset injection of Mid Valley Southkey, the investment bank downgraded its recommendation for IGB Berhad from “Trading Buy” to “Neutral.” The target price remains unchanged at RM2.95, representing an approximately 10% discount to its book value. The report notes that 104 leases, representing about 14% of net lettable area for retail assets, are due for renewal in FY25, indicating ongoing operational activity.