Results

1Q normalised PAT came in at RM54.3m, making up 26.3% and 25.9% of HLIB and consensus forecasts respectively.

Deviations

None

DPU

1.86 sen DPU was declared in 1Q13, in-line with our fullyear 6.88 sen DPU forecast.

Highlights

Healthy performance in 1Q… Rental income enjoyed 10.1% yoy growth, thanks to earnings contribution from Fashion Avenue (which commenced only in 3Q 2012) and Pavilion Office Tower being fully tenanted from 3Q 2012 onwards.

Both segments performing well… NPI for the retail mall and Pavilion Tower enjoyed qoq growth of 3.9% and 14.8% respectively.

Minor NPI margin contraction… 1Q NPI margin contracted 1.0 ppt yoy to 70.0%, due to a 26.2% yoy rise in maintenance cost. Management attributes the increase to the incurrence of scheduled progressive preventive maintenance works.

Waiting for farenheit88 (F88)… As mentioned in our Company Insight report issued on 15th Apr 13, we believe that F88 could be injected by as soon as end-2013. Given that PREIT’s retail mall asset yield is currently in the region of 6.5%, we expect the injection yield of F88 to be close to this benchmark rate. We understand that the key to sealing the deal will be an upcoming round of major rental reversion for F88 in 2H FY13.

Risks

Slowdown in the economy and consumer spending; delay in the MRT project execution (Bukit Bintang Station).

Forecasts

Maintained.

Rating

HOLD

• Positives: Enjoys the largest direct exposure to the superprime Bukit Bintang stretch via Pavilion Mall; strong branding and rental reversions; well-managed tenant mix.
• Negatives: Limited internal pipeline vs. Sunway REIT and CMMT; intensifying competition for third party retail assets; upside capped by premium valuations; limited free float.

Valuation

Pavilion REIT currently trades at 4.3% yield, which represents the lower boundary DY in our view. Our TP is maintained at RM1.53 (4.5% target DY). Maintain HOLD.

Source: Hong Leong Investment Bank Research - 25 Apr 2013