IGB Corporation - Building a megamall in Johor BUY

Stock Name: IGB
Company Name: IGB CORPORATION BHD

Research House: AMMB

Price Call: BUY

Target Price: 3.50

- It was reported in the press today that IGB intends todevelop a megamall ' which will have a GFA of 3 million sf ' in SouthKey, JohorBahru, which is estimated to cost RM2bilRM3bil. 

- IGB may have a 70%-equity stake in the mall with the restto be taken up by Selia Pantai ' the developer of Southkey ' of which IGB willsign an MoU in the near term. This is not a surprise given that IGB has indicatedit has been looking for pockets of land in Johor for development.

- To recap, South Key is a mixed commercial developmentspanning over 300 acres which enjoys frontage of Jalan Tebrau, Jalan Bakar Batuas well as the recently-completed Eastern Dispersal Link. It is located justfive minutes away from Sultan Iskandar Custms, Immigration and Quarantine (CIQ)complex.

- We view this positively because:- (1) we believe the mallwould be a success given the area's sizeable catchment population of more than120,000 and the lack of quality malls within it. 

- At present, the total NLA in Johor Bahru is estimated tobe at 11.6 million sf with an average occupancy rate in excess of 80%.  In the pipeline includes a lifestyle mall(GFA: 1mil sf) by Iskandar Investment Bhd located at Medini North and theredevelopment of Komtar retail mall (GFA: 0.4mil sf) in Johor Bahru CBD.

- (2) IGB is rebuilding its retail mall portfolio whichwould provide a new stream of income and is very much in-line with its businessmodel of developing and growing investment properties. 

- We estimate the mall would provide an additional NOI ofRM76mil p.a to IGB, assuming an NLA of 1.5mil sf, a conservative rental rate ofRM5psf and occupancy rate of 70%. 

- We continue to like IGB Corp because the group is lookingat crystallising the deep value of its retail malls in Mid-Valley City 'triggered by high implied capital values. The group would likely to follow upwith an office and hospitality REIT subsequently. Our fair value is maintainedat RM3.50/share.

Source: AmeSecurities