1HFY21 RNI of RM43.3m came in within our and consensus expectations at 53% and 54% of full-year estimates, respectively. 1HFY21 GDPU of 3.43 sen (48%) also met our FY21E’s of 7.2 sen. Maintain FY21-22E CNP of RM81.8- 82.4m on stable occupancy, mildly positive reversions and minimal lease expiries. Maintain OUTPERFORM and TP of RM0.935 on FY22E GDPU of 7.2 sen on unchanged spread and 10-year MGS target of 3.6%. We like SENTRAL’s attractive gross yield of 8.0% vs. peers’ average of 5.8% while its earnings have remained stable throughout the Covid-19 pandemic period.

1HFY21 realised net income (RNI) of RM43.3m came in within our and consensus expectations at 53% and 54% of full-year estimates, respectively. 1HFY21 dividend of 3.43 sen is also within at 48% of our FY21E of 7.20 sen.

Results’ highlights. YoY-Ytd, top-line was down slightly by 3% due to lower revenues from Platinum Sentral, Plaza Mont Kiara, QB3-BMW and Wisma Technip. However, RNI was up by 12% on lower financing cost (-16%) and gains on disposal from QB5 of RM3.8m which was completed in April 2021. QoQ, top-line was down by 6.9% due to similar reasons mentioned above, but bottom-line was up by 9.4% on lower operating expenditure (-10.7%), RM3.8m disposal gain and lower expenditure (-2%), Gearing remained stable at 0.38x.

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 91.7%. With minimal lease expiries, we believe that SENTRAL 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. Earnings is premised on stable occupancy of >90% and flattish-to-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 RM0.935 on FY22E GDPU and an unchanged spread of 4.1ppt @ average SD to our 10-year MGS target of 3.6%. We like SENTRAL REIT as its earnings have remained stable throughout the pandemic in FY20 and 1HFY21, performing better than retail and hospitality peers. Its FY21-22 prospects appear promising with minimal lease expiries, and superior attractive gross yields of 8.0% vs. other large cap MREIT peers of 4.8% to 7.5%.

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

Source: Kenanga Research - 6 Aug 2021