1QFY21 RNI of RM20.7m came in within our and consensu s expectations at 25% and 26% of full-year estimates, respectively. No dividend, as expected. Maintain FY21-22E CNP of RM82.1-82.4m on stable occupancy, mildly positive reversions and minimal lease expiries. Maintain OUTPERFORM and TP of RM0.975 as we roll valuation forward to FY22E GDPU of 7.2 sen on unchanged spread and 10-year MGS target of 3.3%. A plus is its attractive gross yield of 8.0% vs. peers’ average of 5.3% as its earnings are more resilient than retail players which are struggling during this pandemic.

1QFY21 realised net income (RNI) of RM20.7m came in well within our and consensus expectations at 25% and 26% of full-year estimates, respectively. No dividend announced, as expected.

Results’ highlights. YoY, top-line was down slightly by 1.6% due to lower revenues from Plaza Mont Kiara, QB3-BMW and Wisma Technip. However, RNI was up by 4.6% mainly due to lower financing cost (- 19.5%) on lower borrowing rates. QoQ, RNI was marginally up by 0.4% on the back of a marginally lower top-line by 1.8%, but offset by lower operating (-4.1%), financing cost (-10.5%) and expenditure (-5.9%) costs. Gearing remained stable at 0.38x which is below MREITs ’ gearing limit of 0.60x currently.

Outlook. FY21-22 will see minimal lease expiries of 22-16% of net lettable assets (NLA) while the issue of oversupply of office spaces in the Klang Valley remains. Asset occupancy remains relatively stable at 89.0% (vs. 90.0% in 4QFY20). With minimal lease expiries and its track record of low single-digit positive reversions, we believe that SENTR AL would be able to at least see flattish earnings growth YoY. Meanwhile the Covid-19 situation has caused the group to be more diligent in managing cash flows and exercising financial discipline. This may help with attractive acquisition opportunities should the situation arise given the healthy balance sheet.

Maintain FY21-22E CNP of RM81.8-82.4m on stable occupancy and mildly positive reversions. Our FY21-22E GDPU/NDPU of 7.2-7.2 sen / 6.5-6.5 sen imply attractive gross yield of 8.0% each (with net yield of 7.2%).

Maintain OUTPERFORM on an unchanged TP of RM0.975 post rolling valuation forward to FY22E on an unchanged spread of 4.1ppt @ average SD to our 10-year MGS target of 3.3%. We like SENTRAL REIT as its earnings have remained unscathed in FY20 des pite the pandemic and it has proven to be more stable than its peers given that it operates within the office segment with more stable rental . Its FY21- 22 prospects appear promising with minimal lease expiries, and superior attractive gross yields of 8.0% vs. other large cap MREITs peers of 4.7% to 7.0%.

Risks to our call include bond yield expansions and weaker-than- expected rental reversions.

Source: Kenanga Research - 7 May 2021