Results

• Slightly below expectations. 4Q17 normalised net profit of RM22.4m (QoQ: +1.98%; YoY: -2.92%) ended FY17 with RM91.2m (-0.5% YoY). The results were below our expectations but in line with consensus, accounting for 94.6% of ours and 98.3% respectively.

Deviations

• Below expectations due to higher than expected administrative expenses.

Dividends

• Declared 4Q DPU of 1.94 sen, which brings FY17 DPU to 8.26 sen (FY16: 8.25 sen).

Highlights

• YoY: Normalized net profit declined (-2.92%) due to higher administrative expenses and financing cost incurred to fund new acquisitions.
• QoQ: Normalized net profit increased (+1.98%) due to higher contribution rental proceeds from Kerry Warehouse and Wasco Facility.
• FY17: Normalized net profit slightly declined (-0.5%) as rental proceeds from newly acquired assets Scomi Facility, Kerry Warehouse and Wasco Facility were offset by rental loss from Axis Eureka due to its disposal, higher administrative expenses and financing cost.
• Overall occupancy rate slightly improved to 91.1% (3QFY17: 90.1%).
• Vacancy in the portfolio currently stands at 717,880 sq ft and management has secured new leases commencing 1Q18 for 31.2% (223,878 sq ft) of the vacant spaces. We estimate that circa 1.47 sen will be add to the annual DPU of 8.3 sen once the current vacant spaces are filled.

Risks

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

Forecasts

• Our FY18-19 earnings forecasts are reduced by 1.1% to reflect higher than expected administrative expenses.

Rating

HOLD ↔, TP: RM1.52 ↓

• 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 RM1.52 (from RM1.54) after earnings forecast revision. The TP is derived based on FY18 DPU with unchanged targeted yield at 5.6%.

Source: Hong Leong Investment Bank Research - 30 Jan 2018