YTLREIT’s 12MFY18 distributable income grew by 9% to RM134m on higher earnings from the Australian hotels and maiden contribution from Majestic KL Hotel. Full year DPU was however 3% lower yoy at 7.9 sen due to an enlarged share base. Overall, the results were a tad below the street and our expectations. We lowered our FY19-20E distributable income forecasts by 3-5%. At 6.8% FY19E yield, valuation still looks attractive. Maintain BUY

FY18 Distributable Income Grew by 9% - a Tad Below Our Expectations

YTLREIT’s FY18 distributable income grew by 9% yoy to RM134.1m, driven by higher revenue contributions from the Australian hotels (improved occupancy, higher average daily rate) and maiden contribution from the Majestic KL Hotel (acquired in Nov17). Notwithstanding a higher profit, its FY18 DPU fell by 3% to 7.9 sen due to an enlarged share base following the placement of new shares in Dec16 to fund the acquisition of Majestic KL Hotel and refurbishment of The Ritz Carlton. Headline net profit improved from a RM12.1m net loss in FY17 to a profit of RM236.6m attributable to stronger realised profit as well as unrealised forex gain of RM107.3m (vs RM83.5m forex loss in FY17). Overall, the results fell short of street and our expectations due to lower than expected earnings from the Australian hotels.

Sequentially, Distributable Income Grew by 2%

Sequentially, YTLREIT’s 4Q18 distributable income grew by 2% on higher contribution from its Australian hotels. Headline net profit dipped by 22% qoq to RM67.6m due to absence of unrealised forex gain (RM65.8m in 3Q18), partly cushioned by revaluation gains amounting to RM58.2m.

Maintain BUY With a Lower DDM-derived TP of RM1.32

We trimmed our FY19-20E distributable income forecasts by 3-5%, imputing lower earnings contribution from the Australian hotels, in view of the softer market outlook. We reiterate our BUY rating on YTLREIT with a lower DDMderived target price of RM1.32 (from RM1.35). We continue to like YTLREIT for its stable earnings outlook – c.49% of YTLREIT’s NPI is contributed by its hotels under long-term leases with high earnings visibility while the other 51% is derived from Australian hotels with a steady outlook. At 6.8% FY19E yield, YTLREIT’s valuation look attractive. Key downside risks to our call are a deterioration in Australian hotel market, interest rate hike(s) and strengthening of Ringgit against the AUD.

Source: Affin Hwang Research - 1 Aug 2018