IGB Corporation - Going ahead with REIT of MidValley retail assets BUY

Stock Name: IGB
Company Name: IGB CORPORATION BHD

Research House: AMMB

Price Call: BUY

Target Price: 3.50

- It was announced yesterday that IGB's 75%-owned, KrisAssetshas proposed to set up a retail REIT (IGB REIT), comprising its two valuableassets i.e. MidValley Megamall and MidValley Gardens. 

- We understand CIMB Investment Bank, Credit Suisse and HongLeong Investment Bank have been appointed as joint global coordinators andjoint book-runners for this proposed IPO. 

- Although not mentioned, we believe both assets would be ableto gain valuation of at least RM4bil or at a cap rate of 6%.

- As we have highlighted in our previous reports, the monetisationmove would unleash a significant revaluation surplus from assets re-pricing,and free up capital for redeployment. 

- The establishment of a REIT would optimise the ownership structureof its prime properties. This move, we believe, is triggered by the highimplied capital values evident in the recent listing of Pavilion REIT andCapitaMall Trust and a flat interest rate cycle. 

- IGB may rake in between RM465mil and RM1.4bil cash, dependingon its equity stake in the REIT. We would expect a special dividend and IGBwould deploy the freed capital to fund development projects overseas whereby itis looking at opportunities in London and Taiwan.

- There is a further RM1.05bil revaluation surplus in IGB's under-appreciatedportfolio of well-occupied office buildings (2.2msf), which are carried in itsbook at low historical costs. The retail REIT may be the trailblazer for IGB tolaunch an office REIT further out.  

- A hospitality REIT for its hotel assets would complete there-pricing of its assets, transforming IGB to an asset-light fee-based entitywith controlling stakes in three listed asset-specific REITs. 

- We maintain our BUY rating on IGB Corp with our fair valueunchanged at RM3.50/share based on a 22% discount to our NAV estimate ofRM4.50/share.

Source: AmeSecurities