Is IGB Bhd Undervalued Right Now?

IGB Bhd is a well-known real estate conglomerate listed on Bursa Malaysia. It is worth RM 1.81 billion in market capitalisation as of 8 May 2019. In this article, I will cover on its latest financial results, future plans and valuation figures. Thus, here are 12 things to know about IGB Bhd before you invest.

• Revenue Breakdown 2018
  IGB Bhd derives income from four main business segments. Here, I’ll be listing their contribution of revenues for 2018:
  
  

No.	Segments	Revenue (RM Million)	Revenue (%)
1	Property Investment – Retail	529.5	40.7%
2	Property Investment – Commercial	170.2	13.1%
3	Property Development	166.8	12.8%
4	Hotels	300.6	23.1%
5	Other	134.9	10.3%
IGB Bhd’s Revenue 2018	1,302.1	100.0%

Source: IGB Bhd’s Annual Report 2018

• Segment 1: Property Investment – Retail
  IGB Bhd owns 52.92% unitholdings of IGB REIT, which holds two prime retail malls known as MidValley Megamall and the Gardens. They have remained as IGB Bhd’s biggest contributor of income. For more details, you may click here for my latest write-up on IGB REIT.
  
  Overall, it has generated stable growth in revenues to IGB Bhd, growing from RM 449.8 million in 2014 to RM 529.5 million in 2018.
  
  
  

Source: IGB Bhd’s Annual Reports

• Segment 2: Property Investment – Commercial
  IGB Bhd has 3.8 million sq. ft. in net lettable area (NLA) of office spaces. They include the following buildings:
  
  – Centrepoint North & South Towers.
  – The Gardens North & South Towers.
  – GTower.
  – Hampshire Place Office.
  – Menara IGB.
  – The Ampwalk.
  – Plaza Permata.
  – Menara Tan & Tan.
  – Menara Southpoint (Included in 2018)
  
  
  Its office portfolio had recorded a drop in occupancy rate from 89.1% in 2016 to 84.6% in 2018. It was because of softer rental market due to an increase in supply and lower demand for office spaces in Kuala Lumpur. Revenues had fallen from RM 193.2 million in 2014 to RM 170.2 million in 2018.
  
  
  

Source: IGB Bhd’s Annual Reports

• Segment 3: Property Development
  After a dip in 2016, this division experienced a breakthrough in 2018 as it had completed a soft launch for Damai Residence and obtained itself an approval for the master plan of 129 acres of land in Wangsa Maju. It intends to develop residential properties on the Wangsa Maju land. IGB REIT’s property development division had recorded RM 166.8 million in revenues in 2018.
  
  
  

Source: IGB Bhd’s Annual Reports

• Segment 4: Hotels
  As of 31 December 2018, IGB Bhd has total room inventory of 5,248. It consists of hotels under brands such as St Giles, Cititel and MiCasa. The division had experienced a fall in room occupancy rates and room rates for the last 2 years as a result of a weaker hospitality market. As such, it has reported a decline in revenue from RM 403.1 million in 2016 to RM 300.6 million in 2018.
  
  
  

Source: IGB Bhd’s Annual Reports

• Group Results
  Overall, IGB Bhd had maintained its revenues at RM 1.2 – 1.3 billion per annum for the last 5 years. This is because IGB Bhd’s growth in revenue from retail malls have been offsetted by its sales decline from its offices and hotels divisions during the period.
  
  Shareholders’ earnings had increased from RM 102.2 million in 2014 to RM 235.6 million in 2018. It is because profit increase from retail malls, reduction in finance cost and tax expenses had offsetted the decline in profits, especially from its office division during the period.
  
  IGB Bhd has a 6-Year Return on Equity (ROE) average of 6.21% a year. It means, IGB Bhd has made, on average, RM 6.21 in earnings per annum from every RM 100.00 in shareholders’ equity from 2014 to 2018.
  
  
  

Source: IGB Bhd’s Annual Reports

• Balance Sheet Strength
  As of 31 December 2018, IGB Bhd has total interest-bearing liabilities of RM 4.12 billion and total assets of RM 8.57 billion. Its gearing ratio is as much as 48.1% presently.
  
  
  
• Who Owns IGB Bhd?
  As of 29 March 2019, the list of substantial shareholders of IGB and the amount of direct shareholdings are as followed:
  
  
  

No.	Substantial Shareholders	Direct Shareholdings (%)
1	Tan Chin Nam Sdn Bhd	23.68%
2	Wah Seong (Malaya) Trading Co. Sdn Bhd	15.09%
3	Tan Kim Yeow Sdn Bhd	9.69%
4	Wang Tak Company Ltd	5.56%
5	Others	45.98%
IGB Bhd’s Total Shareholders	100.0%

Source: IGB Bhd’s Annual Report 2018

Dato’ Seri Robert Tan Chung Meng is the Group CEO of IGB Bhd.

Tan Lei Cheng, his daughter, is appointed as the Chairman of IGB Bhd.

• Future Growth Plans
  IGB Bhd would continue to embark on a handful of main projects. They include:
  
  

No.	Main Projects	Completion Date
1	Menara Southpoint	Opening in Q2 2019
2	Midvalley Megamall Southkey, Johor Bahru	Opening in Q2 2019
3	St. Giles Southkey, Johor Bahru	Early 2020
4	Midvalley Southkey North & South Tower, Johor Bahru	Completing in 2020

Source: IGB Bhd’s Annual Report 2018

• P/E Ratio
  In 2018, IGB Bhd has reported to make RM 0.352 in earnings per share (EPS). As of 8 May 2019, IGB Bhd is trading at RM 2.70 a share. Thus, it has a current P/B Ratio of 7.67, below its 10-year average of 10.43.
  
  
  

• P/B Ratio
  As of 31 December 2018, IGB Bhd has net assets of RM 4.99 a share. Its current P/B Ratio is 0.541, which is below its 10-year average of 0.621.
  
  
  

• Dividend Yields
  IGB Bhd paid little dividends to its ordinary shareholders. In 2018, it has paid out 2.0 sen in dividends per share (DPS). Thus, its dividend yield is 0.74% per annum. As such, the consideration for investing in IGB REIT is for ‘capital gains / growth’ rather than dividends.
  
  
  
  

VIA’s Verdict

Overall, IGB Bhd had delivered growth in shareholders’ earnings over the past 5 years. Its stock price had risen, thus, raising its market capitalisation marginally, up from RM 1.50 billion in 2014 to RM 1.81 billion presently.

Source: Google Finance

At current valuations, it is trading at below P/E and P/B Ratio currently. So, the question is: ‘Would you invest in IGB Bhd at RM 2.70 per share today?’

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