Period     2Q13 / 1H13

Actual vs. Expectations    1H13 realized net income (RNI) of RM41.8m was within expectations, making up 46% and 45% of street and our estimates respectively.

Dividends    2Q13 GDPU of 4.6 sen includes a 0.15 sen non- taxable portion.

Key Results Highlights   YoY, 1H13 RNI rose by 5% on the back of full year contributions from Emerson facility @ Negeri Sembilan and Wisma Academy/Annex.

QoQ, 2Q13 RNI increased marginally by 3% to RM21.2m against flattish NPI growth. This was due to a 5% reduction in financing cost to RM5.9m. 2Q13 PAT was up by 17% to RM24.4m due to RM2.7m fair value adjustments.  

Outlook    To date, the company has not announced any new acquisitions, although they have previously guided that they are looking to acquire RM350m worth of assets in FY13. They have also not completed their placements, which tends to hinge on new acquisitions. We will provide more clarity on the company’s outlook post today’s briefing.

Change to Forecasts    No changes to estimates for now, pending today’s result briefing.

Rating  Maintain MARKET PERFORM

Our call is sector driven. We have a NEUTRAL view on MREITs. Furthermore, it lacks exciting growth prospects due to the absence of asset acquisitions.

Valuation     No change to our TP of RM3.60 based on FY14E target gross dividend yield of 5.7% (net: 5.2%).

Risks    Office and industrial sector risks, including yield dilutive acquisitions and sector de-rating due to reversals in yield curves. The upside risk to our call is further compressions in the 10-year MGS beyond our expected FY13E 3.5%.

Source: Kenanga