Results

• Slightly below expectations. 3QFY17 normalised net profit of RM22m (qoq: -6.5%; yoy: -8.2%) translated into 9MFY17 normalized net profit of RM68.8m (+0.3% yoy) which is slightly below expectations, accounting for 70.9% of our and 71.7% of consensus estimates.

Deviations

• Higher than expected administrative expenses.

Dividends

• Declared 3Q DPU of 2.0 sen

Highlights

• YoY/ QoQ: Normalized net profit declined (qoq: -6.5%; yoy: -8.2%) due to higher administrative expenses and financing cost incurred to fund new acquisitions.

• YTD : Normalized net profit remained flattish as rental proceeds from newly acquired assets at Scomi Facility@Rawang and Kerry Warehouse were offset by higher administrative expenses and financing cost.

• Overall occupancy rate slightly improved to 90.1% (2QFY17: 89.1%) reinforced by a positive rental reversion of 5.9%.

• We understand that management is in advanced stages to conclude new tenants for some of the vacant spaces. We estimate that circa 1.72 sen will be add to the annual DPU of 8.6 sen once the current vacant spaces (753,404 sq ft) are filled.

• Besides, management is also actively sourcing and evaluating potential acquisition targets with a total estimated value of RM228.5m.

Risks

• High concentration on logistic warehouse, office / industrial and manufacturing facilities.

Forecasts

• Our FY17-19 earnings forecasts are reduced by 2.4%, 1.2% and 1.2% respectively after factoring in higher administrative expenses.

Rating

• HOLD ↔ , TP: RM1.70

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

Valuation

• Maintain HOLD with slightly lower TP of RM1.70 (from RM1.71) after earnings forecast revision. The TP is derived based on FY18 DPU with unchanged targeted yield at 5.1%

Source: Hong Leong Investment Bank Research - 30 Oct 2017