IGB Berhad – the market is ignoring the value of its assets

[i4value]

Investors in Bursa Malaysia tend to look at earnings rather than assets. This does not make sense when you consider sectors such as utility and real estate where assets play a central role.

A case in point is Bursa IGB Berhad, a real estate group with investment properties, hospitality and property development activities.

It current trades at RM 2.49 vs its book value of RM 2.98 per share. The 2023 book value of its investment properties was stated as RM 3.9 billion. However, in the Notes to the Accounts, IGBB reported that the fair market value of its investment properties totalled RM 10.7 billion.

The realistic asset value is then not what is stated in its book, but has to include what is not captured. On such a basis the asset value should be more than RM 7 per share.

So why has the market not recognized this? This is because IBGG latest EPS is only RM 0.23. Of course, the market does not expect IGBB to sell off all the assets and return the money to shareholders. So the market ignores the value of the assets. But what if there are other ways to unlock the value of the assets?

[i4value]

[weijian]

hi i4value,

Thanks for another instructive post on a Msian-listed company. I have 2 questions after reading your blog:

(1) Does the 427mil avg profit from the Investment Properties (Table 1) include fair value gains? A 23% ROCE for investment properties (excluding paper gains) looks a bit out of the world.

(2) The listing of C-REIT looks really interesting. In general, when the sponsor decides to spin off their properties into a REIT, it is considered unlocking value. Existing shareholders of the sponsor will benefit in either/or both of the 2 ways - (a) get a special cash dividend from the partial divestment. (b) get DIS with no strings attached....Therefore it is quite interesting that IGB chose to raise cash from existing IGB shareholders, ie. with strings attached. It is structured in such a way that shareholders only "benefit" when they folk out their own money to subscribe.

[i4value]

hi i4value,

Thanks for another instructive post on a Msian-listed company. I have 2 questions after reading your blog:

(1) Does the 427mil avg profit from the Investment Properties (Table 1) include fair value gains? A 23% ROCE for investment properties (excluding paper gains) looks a bit out of the world.

(2) The listing of C-REIT looks really interesting. In general, when the sponsor decides to spin off their properties into a REIT, it is considered unlocking value. Existing shareholders of the sponsor will benefit in either/or both of the 2 ways - (a) get a special cash dividend from the partial divestment. (b) get DIS with no strings attached....Therefore it is quite interesting that IGB chose to raise cash from existing IGB shareholders, ie. with strings attached. It is structured in such a way that shareholders only "benefit" when they folk out their own money to subscribe.

[i4value]

If you compare Table 1 with Table 6, you can see that the values of the investment properties in Table 1 is not at market value. Table 6 is the market value estimates.

I think the C-REIT was not well received by the market. I am a long-term investor in IGBB and as such I subscribed to the C-REIT and is holding onto them. But I am not sure whether the short term investors would do so.

The sad part is the market looks at earnings rather than Asset Value so I think IGBB will continue to be underpriced for some time.

[weijian]

hi i4value,

Thanks for the clarification as we had a "terminology mismatch".

Do you think it is irrational for Mr Market to look at earnings rather than Asset Value?