Results

• Reported FY16 gross revenue of RM372.6m (+8.1% yoy) which translated to normalised net profit of RM163.7m (+5.5% yoy), accounting for 99.1% and 97.4% of our and consensus full-year estimates, respectively.

Deviations

• None.

Dividends

• Declared final DPU of 4.23 sen (4QFY15: 4.14 sen), going ex on 7 Feb 2017. FY16 dividend amounted to 8.43 sen (FY15: 8.61 sen) representing an annualized yield of 5.1%.

Highlights

• YoY: Gross revenue was rather flat (+0.2%) and net income was up by +0.9% due to better performance from Gurney Plaza (GP) on the back of higher rental reversion (+5.7%) offset by lower contribution from Sungei Wang Plaza (SWP).
• QoQ: Gross revenue (-0.1%) and net income (-1.4%) were down as SWP continued to be affected by the ongoing MRT works and closure of BB plaza as well as lower occupancy rate for East Coast Mall (ECM).
• FY16: Same store sales grew by 7-8% (non-anchor) post- GST period with all portfolios showing improved sentiment. Meanwhile, higher gross revenue (+7.4%) and net income (+5.5%) are on the back of full year recognition of the newly acquired Tropicana City Property and better performance from GP.
• A contraction in NPI (-6.5% yoy) for Tropicana City Mall (TCM) is caused by downward rental reversion (-7.2%) given management business decision on amalgamation of space to cater for mini anchor and new trade mix.
• Notably, FY16 rental reversion for SWP (-42.8%) is due to adjustment of rents to be on par with the prevailing market rate after the closure of BB plaza.
• Overall, average cost of debt improved to 4.44% (was 4.46%); gearing was steady at 32.4% while portfolio occupancy rate remained healthy at 96.3%.
• Management is confident on renewal of lease expiring in 2017 which accounts for 49.1% of total NLA, albeit at a lower rental reversion. Most of the lease expiry involves major anchor tenants (Parkson, Aeon Big, Padini and etc.).

Risks

• Lower than expected contribution from SWP.
• Prolonged erosion in consumer sentiment.

Forecasts

• We incorporate FY16 numbers and assumptions, resulting in lower FY17-FY18 bottom-line by 3.8%-3.4%, respectively.

Rating

HOLD ↔, TP: RM1.59 ↑,

• While we expect better results going forward on the back of organic growth from 49.1% of NLA expiry in FY17, the concerns on the performance of Sungei Wang Plaza (SWP) and to a lesser extend Tropicana City Mall (TCM) remain.

Valuation

• Maintain HOLD recommendation with a higher TP of RM1.59 (from RM1.56) based on FY17 DPU with lower targeted yield of 5.6% (1SD below historical average yield spread on 10-year MGS) from 5.9% previously as we expect growth in DPU for FY17, recovering from a dip in FY16.

Source: Hong Leong Investment Bank Research - 25 Jan 2017