Results

• Within expectations. The results were in line, accounting for 95.5% and 94.9% of ours and consensus full year estimates, respectively.

Deviations

• None.

Dividends

• Total declared DPU in 4Q is 2.00 sen, which brings FY17 DPU to 8.22 sen (FY16: 8.43 sen).

Highlights

• QoQ: Normalized net profit declined by 6.2% to RM37.6m due to lower contribution from Klang Valley shopping malls but partially mitigated by strong performance from Gurney Plaza (GP) and East Coast Mall (ECM).
• YoY: Normalized net profit decreased by 8.1% 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 services property maintenance and marketing expenses. This was partially offset by improved performance from GP and ECM on the back of higher rental rates achieved.
• FY17: Normalized net profit decreased by 3.5% to RM158.0m due to lower contribution from Klang Valley shopping malls and higher property maintenance and marketing expenses.
• Rental reversion: Minor decline of rental reversion for overall portfolio at 1.3% (3Q17: -1.8%).
• Gearing and occupancy rate: Overall, average cost of debt remained the same at 4.4%, sustainable healthy gearing at 32.8% while occupancy rate remained stable at 95.4%.
• Gurney Plaza: Undergoing improvement works which includes the upgrading of underground tank, building a nursing rooms as well as reconfiguring the food court. We believe this will enable GP to better serve its customers.

Risks

• Lower than expected contribution from Sungai Wang Plaza.
• Prolonged erosion in consumer sentiment.

Forecasts

• Unchanged.

Rating

HOLD ↔ , TP: RM1.53 ↔

• While we expect better contributions resulted from improvement works on GP and ECM going forward, we are concerned about the Klang Valley shopping mall operating environment which has been plagued by the oversupply issue. We do not foresee this situation improving excessively in the near term.

Valuation

• Maintain HOLD recommendation with unchanged TP of RM1.53 based on unchanged FY18 targeted yield of 5.8%.

Source: Hong Leong Investment Bank Research - 25 Jan 2018