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Focus Malaysia

High footfall and rental reversion support IGB REIT's solid 1HFY25 performance

ON A sequential basis, IGB REIT's quarter two financial year 2025 (2QFY25) core earnings declined to RM97.8 mil as earnings normalised from the high base in 1QFY25 while 2Q is seasonally quieter quarter. Recall that earnings in 1QFY25 were lifted by higher shopper footfall amid festive seasons. 'On yearly basis, 2QFY25 earnings were higher (+11%yoy), bringing 1HFY25 core earnings to RM208.4m (+9.4%yoy). 1HFY25 earnings remains solid as tenant sales and shopper footfall at Mid Valley Megamall and The Gardens Mall remain resilient,' said MBSB Research. Besides, the earnings growth was supported by positive rental reversion. We see stable earnings outlook for IGB REIT as performance of Mid Valley Megamall and The Gardens Mall will sustain by the high occupancy rate and high shopper footfall. Earnings prospect is expected to be better from FY26 onwards due to contribution from Mid Valley Southkey Mall. Recall that IGB REIT recently proposed to acquire Mid Valley Southkey Mall in Johor Bahru for RM2.65 bil. The acquisition is expected to complete in 4QFY25. The acquisition is expected to be yield accretive due to attractive net property income (NPI) yield of 7.2%. We fine tune our FY25 earnings forecast by +3.9% as we earnings to pick up in 2HFY25 due to year-end shopping spree. We also revise our FY26/27 earnings forecast by +3.6%/+4.8%. We revise our target price for IGB REIT to RM2.70 from RM2.48 as we rollover our valuation. We downgrade IGB REIT to NEUTRAL from BUY as we believe that all the positives have been priced in. While we see that the acquisition of Mid Valley Southkey Mall is an earnings catalyst, we think that positives are largely priced in. Besides, distribution yield for FY26 tapers to 4.2% following recent share price rally which we deem unattractive at current juncture. —July 30, 2025 Main image: The Pearl Kuala Lumpur