Results

• FY16 gross revenue of RM171.3m (+3.4% yoy) and normalized net profit of RM91.7m (+0.1% yoy) are within expectations, accounting for 98.3% of our and 98.9% of consensus estimations.

Deviations

• None.

Dividends

• Declared final DPU of 2.10 sen (4QFY15: 2.00 sen), going ex on 31st Jan 2017. YTD dividend amounted to 8.25 sen (FY15: 8.40 sen) represents an annualized yield of 5% at current price.

Highlights

• YoY: Rental income and net profit grew by 6.0% (excluding the effect of unrealised rental income) and 6.3% respectively, on the back of newly acquired assets at Beyonics i-Park Campus and higher rental rate.
• Qoq: Revenue was marginally higher (+1.9%) on higher rental rate and following the completion acquisition of new asset in Rawang on 15 Nov 2016. However, net profit was lower (-3.6%) due to higher trust expense, financing cost after adjustment for unbilled lease receivable.
• FY16: Revenue grew by 3.4% due to positive rental reversion, higher occupancy, proceeds from newly acquired properties, but partly offset by the loss of rental income from PDI centre. Nevertheless, net profit was rather flat due to higher maintenance expenses in some of the properties and financing cost attributable to new acquisitions.
• Currently, the RM33m proposed acquisition of warehouse building at Pasir Gudang Johor and the proposed disposal of RM56m Axis Eureka are still pending.

Risks

• High concentration on logistic warehouse, office / industrial and manufacturing facilities.
• Slower rental reversion as compared to other M-REITs.

Forecasts

• No change to forecast pending for more updates from results briefing later today.

Rating

HOLD ↔, TP: RM1.72 ↔

• Maintain HOLD recommendation as we expect the benefits from the revision of REIT guidelines will only emerge over a longer-term horizon and rerating of this stock will be warranted once (i) the plan to pare down gearing is realized; (ii) improved take up rate on its vacant/low occupancy properties; and (iii) securing near-term NLA expiry.

Valuation

• TP unchanged at RM1.72 with unchanged targeted yield of 5.1%, based on 1SD below historical average yield spread on 10-year MGS as we expect more developments and benefits from the revision of guidelines in longer term.

Source: Hong Leong Investment Bank Research - 19 Jan 2017