- In 1QFY23, Hektar’s gross revenue slid 1% YoY while net property income (NPI) fell 9% YoY, exacerbated by higher operating expenses driven by higher utilities cost as a result of a recent electricity tariff hike.
- QoQ, Hektar’s 1QFY23 revenue rose 10% while NPI surged 52%. The stronger NPI was mainly attributed to the lower mall upkeep as well as repair and maintenance expenses incurred in 1QFY23.
- There was no income distribution declared in 1QFY23 due to its semi-annual distribution policy.
- QoQ, average occupancy rate inched up 1%-point to 84% (Exhibit 2), mainly contributed by higher occupancy rates in Subang Parade, Mahkota Parade, Wetex Parade and Central Square. As at 31 March 2023, the committed occupancy rate of Hektar stood at 85%.
- Hektar has registered a positive reversion of 0.2% in 1QFY23, mainly due to positive reversions at Mahkota Parade and Kulim Central (Exhibit 4). Nevertheless, we still expect a slight negative rental reversion of <-5% in FY23F as we believe Hektar needs to offer more competitive rental rates in its underperforming malls, particularly Subang Parade, to retain existing tenants and attract new clients.
- Given weaker economic data and softening inflation in United States (US), we anticipate the US Fed Funds rate to peak at current level of 5%-5.25% after the recent 0.25% hike in May 2023. If the US inflation rate continues to decline over the subsequent months, we may see a pause in the US monetary tightening cycle.
- As such, we do not rule out the possibility that the 10-year MGS yield could ease further from our 2023F yield of 3.8%-4% if there are signals affirming a less hawkish tone by the US Federal Reserve, resulting in a pause in Fed Funds rate hikes, as well as the tapering of inflation rates globally which will reduce pressures on central banks, including BNM, to continue raising interest rates.
(i) its diverse portfolio of neighbourhood shopping centres located strategically over 4 states (Selangor, Melaka, Johor and Kedah) in Peninsular Malaysia;
(ii) most of its retail malls (Kulim Central, Central Square and Wetex Parade) have a more consistent customer base as they are either the only mall in that particular town or the dominant shopping centre; and
(iii) its strategic collaboration with Frasers Centrepoint Trust will help Hektar expedite acquisition plans, work on joint venture prospects, obtain financial assistance and leverage on synergies in skills, experience, and retail connections.
Source: AmInvest Research - 26 May 2023