gsg_stock discussion

Stockwatch- IGB Corp (Malaysia), Deutsche Bank report 3 Nov 2006 Window to unlock values

Window to unlock values

Demand for commercial properties heating up. The pick up in commercial property transactions recently confirmed that demand for commercial properties is strong. The latest two transactions - Westin Hotel and Crown Princess Hotel - were done at DB estimated cap rates of between 2.5-3.9%. We believe this is positive for IGB (IGB MK RM1.54, BUY, TP RM2.08) given its large portfolio of hotel assets in Malaysia. IGB owns 7 hotels in Malaysia
including 100% owned Cititel Hotel, Boulevard Hotel, Micasa Hotel Apartments, Pangkor Island Hotel, Stanfard Hotel and associate holdings in Renaissance Hotel (50%) and SuCasa Service Apartment (40%).

Low yielding hotels may be up for sale. IGB has earlier announced plan to divest its 40% stake in SuCasa Service Apartment for RM21.2m cash. Given flush liquidity in the market and strong interests for commercial assets in Kuala Lumpur, we believe the window is now open for IGB to unlock value, especially property investments that are low yielding and not fully
controlled by IGB. This may include 50% owned Renaissance Hotel which has a book value of RM286.4m or RM629,450 per room. Based on recently transacted cap rates of 2.5-3.9%, we estimate this asset could be worth between RM529 and RM826m (100%).

RNAV discount should narrow. The compressing asset yield should eventually translate into a narrower RNAV discount, we believe. We reiterate our BUY recommendation on IGB and TP of RM2.08, valuing the company at 30% discount to RNAV or implied asset yield of 6%, tracking some recent transactions. Key risks include rising interest rates, sharp economic
downturn that affects occupancy and future rental rate revision.

posted by gsg @ 11:47 PM