Results

• Within expectations. 3QFY17 normalised net profit of RM40.1m (qoq: +0.4%; yoy:-3.5%) brought 9MFY17 normalised net profit to RM120.2m (yoy: -2.1%), accounting for 72.7% and 70.0% of our and consensus full -year estimates, respectively.

Deviations

• None.

Dividends

• Declared 3Q DPU of 2.08sen.

Highlights

• YoY: Normalized net profit decreased by 3.5% due to (i) negative rental reversions from Sungei Wang Plaza (SWP), (ii) lower rental rates and occupancy in The Mines (TM) and Tropicana City Property (TCP) and (iii) higher property operating expenses. This was partially offset by better performance from Gurney Plaza (GP) and East Coast Mall (ECM) on the back of higher rental rates achieved.
• QoQ: Normalized net profit remained flattish (+0.4%) as lower contribution from Klang Valley shopping malls was mitigated by strong performance from GP and ECM.
• YTD: Normalized net profit decreased by 2.1% due to lower contribution from Klang Valley shopping malls and higher property operating expenses.
• Rental reversion: Rental reversion for overall portfolio declined at a slower pace of -1.8% (1H17: -4.5%) and this was mainly driven by improved performance from SWP, GP and TCP.
• Gearing and occupancy rate: Overall, average cost of debt slightly increased to 4.41% (2Q17 4.39% ); gearing was steady at 32.8% while occupancy rate remained stable at 95.8%.
• Sungei Wang Plaza: Both rental and traffic in SWP improved due to completion of MRT works. We believe that performance from SWP has bottomed and will improve in the long run due to better connectivity.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD ↔ , TP: RM1.59 ↔

• While we expect better contribution from GP and ECM going forward, we are concerned about the Klang Valley shopping mall operating environment which has been plagued by oversupply problem. We do not foresee this situation improving significantly in the near term.

Valuation

• Maintain HOLD recommendation with unchanged TP of RM1.59 based on FY18 DPU with targeted yield remains unchanged at 5.6%.

Source: Hong Leong Investment Bank Research - 26 Oct 2017