RESULTS

• Within expectations. Pavilion REIT (PREIT) reported a 2Q18 revenue of RM135.1m (+2.7% qoq, +11.4% yoy) and core net profit of RM60.8m (-6.9% qoq, +11.8% yoy). 1H18 core net profit accounts for 46.5% and 48.1% of our and consensus full-year forecasts respectively. We expect 2H18 to be stronger with the contribution from Elite Pavilion Mall fully kicking in as the acquisition was completed as at end-Apr 18.
• Declared 4.34 sen dividend, accounting for 51% of our full-year estimate.

COMMENTS

• Top-line and bottom-line improved. On a yoy comparison, both top-line and bottom-line improved 11.4% and 13.2% respectively for 1H18 mainly due to an increase in rental income from the newly-acquired Elite Pavilion Mall and the higher occupancy rate at Intermark Mall. Notably, occupancy rates are above 90% for all the malls except Damen Mall. On a qoq basis, core PAT declined 6.9% due to lower revenue rent from Pavilion Mall (due to the repositioning exercise) and higher borrowing costs (for the acquisition of Elite Pavilion Mall).
• Rental reversion still decent. We were guided that rental reversion is about 5% ytd. Management has seen improving retail performance compared to 1Q18 as consumer sentiment was boosted post general election in addition to the removal of GST.

VALUATION/RECOMMENDATION

• Maintain HOLD and target price of RM1.50. Our target price is based on a required rate of return of 7.3% and terminal growth of 1.0%, supported by an implied yield of 5.6%. Entry price is RM1.35.

SHARE PRICE CATALYST

• Higher rental reversion post asset enhancement.

Source: UOB Kay Hian Research - 27 Jul 2018