AmResearch maintains Buy on IGB

KUALA LUMPUR: AmResearch is maintaining its Buy call on IGB Corp (IGB) at revised fair value of RM2.80 per share (previously RM2) based on 30% discount (previously 50%) to its net asset value (NAV) estimate of RM4. IGB currently trades at a narrower discount of 55% to its NAV given renewed interest in property.

In a research note issued on Aug 27, it said IGB posted earnings of RM43 million for 2QFY09, bringing 1HFY09 earnings to RM77 million. This accounted for 48% and 56% of the research house and consensus estimates respectively.

In 1HFY09, earnings dipped 3% on-year on the back of 13% decline in turnover - mainly due to no new presales. Despite that, property development’s operating margin was stable at 19% on-year (up 1%) due to larger mix of high-end product recognised in the current quarter.

Property investment and especially its hotel segment showed solid numbers with operating profit growth of 6% and 35% on-year to RM203 million and RM68 million respectively.

Amresearch saud the strong performance for its hotel segment was due to its Gardens Hotel and Serviced Apartments.

It added IGB's unsold stocks had fallen to RM50 million (from RM100 million to RM150 million in April) with liquidation mostly from Laman Sierramas West and Hampshire 2. All 49 units at Laman Sierramas West were sold recently for a total RM37 million - where units are priced between RM560,000 and RM800,000 per unit or at an average of RM300 psf.

"Encouraged by the improved demand for residential PROPERTIES [ ], we believe IGB will be looking to launch 50-60 low-rise condo units in Ampang Hilir in early FY10F. Pricing would be between RM800 psf-RM1,000 psf and we believe demand should be strong for these niche developments normally associated with IGB," it said.

AmResearch raised its estimates for FY10F and FY11F by 4% and 7% to RM179 million and RM236 million respectively because it had included its low-rise condo development in Ampang Hilir  (estimated gross development value of RM80 million to RM90 million) into its model.

MegaMall remains fully tenanted given its strategic location and easy accessibility with current average rental at RM9.60psf. South Tower’s occupancy remains at 90% with stronger tenancy at North Tower (circa 50%) at an average rental of RM6.00 psf-RM6.50 psf.

"Our BUY call remains on conviction that IGB will soon ascend to its next growth phase - where the focus will gravitate towards realising the deep embedded value of its attractive portfolio of investment properties via an establishment of a REIT with MidValley City as cornerstone," it said.