• Pavilion REIT’s 1Q21 realised net profit fell by 21.9% qoq to RM31.3m from weak contributions across all assets
• Overall the results made up 17% and 19% of street’s and our expectations – we deem the results to be within expectations as we anticipate better earnings in the coming quarters
• We maintain our BUY call on PREIT with an unchanged DDM-derived target price of RM1.53

1Q21 Realised Net Profit Fell by 21.9% Qoq to RM31.3m

PREIT’s 1Q21 realised net profit fell by 21.9% qoq to RM31.3m. This was mainly due to a 14% decline in NPI from lower contribution from all assets except Da Men which reported a narrower loss of RM2.2m (vs loss of RM2.7m in 4Q20). Meanwhile, operating expense also increased by 8.1% qoq mainly due to higher maintenance cost relative to a low base in 4Q20. Overall, NPI margin declined by 5.7ppt at 46.6%. Tracking the lower profit, management has declared a lower 1Q21 DPU of 1.10 sen (-20.9% qoq and -9.1% yoy).

Results broadly within expectations - 1Q21 realised net profit fell 9.7% yoy

On a yoy basis, PREIT’s 1Q21 realised net profit fell by 9.7% mainly due to a 6% decline in revenue due to: (i) rental rebates extended to tenants; (ii) lower advertising revenue; and (iii) lower mall occupancy due to non-renewals of some expired tenancies. In tandem, NPI was also lower by 9.6% yoy. Elsewhere, interest expense was lower by 14.5% yoy due to the lower interest rate. Overall, the results made up 17% of street’s and 19% of our estimates. We deem the results as within our expectation as we anticipate gradual earnings improvements in the quarters ahead. We premise our assumption based on anticipation of a gradually lower need for rental assistance moving forward from the gradual easing of restrictions as more of the population are vaccinated. Following the allowance of inter-district travels in early March as Klang Valley transitioned from MCO 2.0 to CMCO, we gathered that footfalls in the malls have returned to 60-70% pre-Covid 19 level.

Maintain BUY With An Unchanged DDM-derived Target Price of RM1.53

Overall, we maintain our BUY call on PREIT with an unchanged DDM-derived target price of RM1.53. At a 5.7% 2022E dividend yield, valuation looks attractive. Downside risks are decline in consumer spending, prolonged need for rental assistance and interest rate increase.

Source: Affin Hwang Research - 30 Apr 2021