• We maintain BUY on Hektar with an unchanged fair value (FV) of RM0.81/unit based on our dividend discount model (DDM), which incorporates a 4-star ESG. The FV implies a FY24F distribution yield of 8%, at parity to its 5-year median.

• Hektar performed its annual revaluation exercise on each of its 6 investment properties pursuant to the Securities Commission’s requirements.

• Consequently, Hektar recognised a net fair valuation gain of RM42mil with the major contributors being Mahkota Parade and Wetex Parade. The only investment property that has experienced a devaluation was Subang Parade, which is likely due to the exit of 2 major tenants in 3QFY22 (Exhibit 1).

• Nevertheless, the FV gain of investment properties will not affect our distributable income and distribution per unit estimates.

• Meanwhile, the revaluation resulted in the increase in net assets per unit to RM1.27 from RM1.19. This has led to the improvement of its FY22F debt-to-asset ratio to 44.6x from 46.1x.

• Hektar currently trades at a compelling FY24F PE of 10x vs. its 2-year average (prepandemic, FY18-19) of 15x. Meanwhile, distribution yield for FY24F of 9% is attractive vs. 10-year MGS yield of 3.8%%.

Source: AmInvest Research - 9 Feb 2023