2QFY22 core net profit of RM15.2m (-4.8% QoQ, -2.6% YoY) brought 1HFY22’s sum to RM31.1m (-2.1%). The results came in within our full year expectations at 48.4%. Declared dividend of 4.3 sen and is going ex on 4 August 2022. Overall, the decrease in top and bottom line was due to lower occupancy rate across its properties; on average, the portfolio occupancy declined to 79% (FY21: 82%). Meanwhile, gearing decreased slightly to 39.2% (FY21: 39.4%). We maintain our forecasts and HOLD call with an unchanged TP of RM1.14. To note, our TP is based on FY23 DPU on targeted yield of 8.5% derived from its 5-year historical average yield spread between UOA REIT and MAG10YR.

Within expectations. 2QFY22 core net profit of RM15.2m (-4.8% QoQ, -2.6% YoY) brought 1HFY22’s sum to RM31.1m (-2.1%). The core net profit was derived after excluding reversal of impairment losses of financial assets and amortized cost pursuant to MFRS 9 (-RM0.1m). The results came in within our full year expectations at 48.4%.

Dividend. Declared DPS of 4.3 sen (semiannual dividend) vs 4.32 sen SPLY.

QoQ. Gross revenue decreased to RM28.5m (-2.1%) due to lower occupancy rate in Wisma UOA Damansara II and movement of tenants in other properties. Similarly, property opex followed suit and reduced slightly (-1.4%) given lower maintenance costs. However, total expenses grew 3.0% on the back of higher borrowing costs (+2.7%), trustee’s fee (+0.6%) and manager’s fee (+0.6%). As such, core net profit decreased by 4.8% to RM15.2m.

YoY/YTD. Revenue fell slightly (-1.7% YoY, -1.5% YTD) due to the decline in occupancy rates for majority of its properties except Wisma UOA Damansara I. Also, property opex, in tandem, fell marginally (-2.0% YoY, -0.5% YTD) owing to lower maintenance costs. However, total expenses remained flattish. Overall, in line with the decrease in revenue, core net profit dropped to RM15.2m (-2.6%) and RM31.1m (- 2.1%), YoY and YTD respectively.

Occupancy and gearing. With 6 properties, the average portfolio occupancy declined to 79% (FY21: 82%). Gearing decreased slightly to 39.2% (FY21: 39.4%).

Outlook. The uptick in economic activities and return-to-office trend augurs well for UOA REIT as gradual recovery in demand for office space occurs. However, the rental reversion rate is expected to remain low or flattish in the near term due to the oversupply of office space. Overall, we expect 2H2022 to remain stable on the back of longer tenancy in office REITs relative to other mall-based REITs.

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

Maintain HOLD, TP: RM1.14. In view of its attractive dividend yield at 8% and strong recovery in mobility to workplaces, albeit mitigated by the oversupply in office space, we maintain our HOLD call with an unchanged TP of RM1.14. To note, our TP is based on FY23 DPU on targeted yield of 8.5% derived from 5-year historical average yield spread between UOA REIT and MAG10YR.

Source: Hong Leong Investment Bank Research - 22 Jul 2022