UOA REIT’s 9MFY21 core net profit of RM47.3m (+76.4%) were within our full year estimates. No dividend was declared as it is usually payable semi-annually. YTD revenue rose (+62.8%) mainly backed by the newly acquired UOA Corporate Tower (Dec 2020). Borrowing costs increased (+105.1%) as to fund the new acquisition. All in, core net profit improved (+76.4%). Occupancy and gearing both increased to 86% and 39.8% respectively. We expect 4Q to remain resilient backed by full year contribution from the new acquisition paired with overall strong portfolio occupancy. We maintain our forecasts, reiterate our BUY call with unchanged TP of RM1.26, based on FY22 DPU on targeted yield 7.2%.

Within expectations. 3QFY21 core net profit of RM16.2m (+8.6% QoQ, +84.5% YoY) brought the 9MFY21 sum to RM47.3m (+76.4%). The results came in within our full year expectations at 78%.

Dividend. None as dividend is usually payable semi-annually.

QoQ. Gross revenue increased (+3.1%) thanks to commencement of new tenancies in UOA Corporate Tower. Lower property expenses (-9.3%) was backed by lower maintenance costs incurred which led the increase in net property income (NPI) (+6.9%). In turn, core net profit improved to RM16.2m (+8.6%).

YoY/YTD. Revenue rose (+62.2% YoY, +62.8% YTD) mainly due to the newly acquired UOA Corporate Tower (Dec 2020). Property operating expenses increased (+5.6% YoY, +23.9% YTD) coming from higher maintenance expenses. NPI continued the uptick (+89.1% YoY, +79.3% YTD). Borrowing costs soared (+140.7% YoY, +105.1% YTD) due to additional financing facilities to fund the new acquisition. Overall, core net profit showed increment (+84.5% YoY, +76.4% YTD).

Occupancy and gearing. With 6 properties strategically located in prime locations in Kuala Lumpur, average portfolio occupancy increased to 86% (1HFY21: 82%). Gearing increased slightly to 39.8% (1HFY21: 39.5%).

Outlook. We expect 4Q to remain resilient backed by full year contribution of UOA Corporate Tower (Dec 2020) paired with overall strong portfolio occupancy. UOA REIT will continue to concentrate on prudent capital management. While potential acquisition is not expected to occur in the near future, the preferred location would be within the Klang Valley area.

Forecast. We maintain our forecasts as results were in line.

Maintain BUY, TP: RM1.26. We maintain our BUY call with an unchanged TP of RM1.26. To note, our TP is based on FY22 DPU on targeted yield of 7.2% derived from 2-year historical average yield spread between UOA REIT and MAG10YR. We like UOA REIT for its attractive dividend yield of 7.6% and its relatively more resilient earnings amid Covid-19 given minimal retail exposure unlike other mall based REITs.

Source: Hong Leong Investment Bank Research - 19 Nov 2021