IGB Corp Bhd (Nov 8, RM2.43)

Maintain outperform with a target price (TP) of RM4.80: A meeting with management revealed that with the recent noncore asset disposal, IGB Corp Bhd has raised about RM1 billion in dry powder for its new assets, especially Mid Valley Southkey Megamall and its proposed mixed developments in London and Bangkok.

Ongoing projects, namely Southpoint Tower in Mid Valley City and Mid Valley Southkey Megamall, are on track to be completed by the first half of 2017 (1H17) and second half of 2018 (2H18) respectively.

As for property development projects, Stonor 3 was soft-launched in October 2016, while its mixed development project in London is now slated to be unveiled by end-2017, due to slower-than-expected approval for the amended planning permission.

To recap, it has disposed of Renaissance Kuala Lumpur Hotel for RM765 million, with the deal turned unconditional recently and expected to be concluded in 2017. We maintain “outperform” and a TP of RM4.80, which is based on a 30% discount to our revalued net asset valuation estimate, as we continue to like the strong cash flow-generative abilities of the company.

We understand that IGB’s new mall in Johor called the Mid Valley Southkey Mall is expected to be unveiled in 2H18. As for construction progress, the foundation works are completed with the works already reaching the typical floors.

As reported earlier, the project has a combined gross development value (GDV) of RM6 billion, to be developed in a few phases. As for the first phase, IGB will build a mall which is said to be an improved version of the existing mall — Mid Valley Megamall in Kuala Lumpur.

Other phases will encompass three hotels (870 rooms), four offices and one serviced apartment (290 units) with an estimated development period of 12 years.

As for Southpoint Tower in Mid Valley City, the project has been changed into a mixed development with 25 levels of offices and 19 levels of residential units, and is expected to be completed in April 2017.

We understand that it has secured an anchor tenant, taking up four floors and expects 70% to 80% occupancy upon completion. Separately, its condominium project, Stonor 3 (RM640 million GDV) in Kuala Lumpur City Centre, was launched in October 2016, but the take-up rate is understandably still slow.

The key project for IGB is a mixed project in London, which originally had a GDV of RM4.2 billion (based on the old building plan), but is now improved to RM9 billion with a higher plot ratio.

The project is now slated to be launched by end-2017, from 2H16, due to slower-than-expected approvals. As for its 5.8-acre (2.35ha) project in Bangkok, Thailand, IGB is still exploring the design of the project, but based on the old design of building two blocks, the GDV is estimated to be RM800 million.

Similar to [email protected] in Iskandar Malaysia (an RM2 billion GDV mixed development located in Zone A), the project will only be launched once market conditions are better.

The recent asset disposal is expected to add RM1 billion to IGB’s coffers. We understand that the proceeds will be mainly used to finance Mid Valley Southkey Mall, among other projects. — PublicInvest Research, Nov 8

This article first appeared in The Edge Financial Daily, on Nov 9, 2016. Subscribe to The Edge Financial Daily here.