1HFY21 realised net income (RNI) of RM51.7m came in broadly within our, but below consensus, expectations at 56% and 31%, respectively, on expectation of a stronger 2HFY21. 1HFY21 dividend of 1.83 sen is within at 55%. Maintain FY21-22E CNP of RM92.5-200.5m. Maintain MARKET PERFORM and TP of RM1.30 on FY22E and 0.5ppt spread above the 10-year MGS to account for potential earnings weakness for pure retail MREITs.

1HFY21 realised net income (RNI) of RM51.7m came in broadly within our, but below consensus, expectations, at 56% and 31% respectively, as we expect 4QFY21 to see a pick-up in rental income and tenant sales from pent-up demand in tandem with the reopening of the economy and successful roll-out of Covid-19 vaccinations. Meanwhile, we believe that consensus may not have incorporated a weak 3QFY21 for now. 1HFY21 dividend of 1.83 sen is within at 55% of our FY21 estimate of 3.3 sen.

Results’ highlights. YoY-Ytd, top-line was down by 4% due to lower rental revenue from all retail assets. However, RNI was up by 16% on lower operating (-8%) and financing (-12%) costs. QoQ, top-line was down marginally by 1%, but higher rental rebates during the quarter caused NPI to decline by 19% and dragged down RNI by 35%. Gearing remained low at 0.35x.

Outlook. FY21 will see up to 20% of portfolio NLA expiring. We expect 3QFY21 to remain weak in light of the record high daily new cases of Covid-19 currently. However, we are still optimistic that the situation will improve by 4QFY21 with the high roll-out of daily vaccinations, and that FY22 would be a comeback year for the retail MREITs.

Maintain FY21-22E CNP of RM92.5-200.5m on mildly negative reversions in FY21 and high rental rebates, whilst we expect to see positive low single-digit reversions in FY22 and absence of rental rebates. Our FY21-22E GDPU of 3.3-6.9 sen (NDPU of 3.0-6.2 sen) imply gross yield of 2.5-5.1% (net yield of 2.2-4.6%).

Maintain MARKET PERFORM and TP of RM1.30 based on FY22E GDPS/NDPS of 6.9 sen / 6.2 sen and +1.6ppt (at +0.5SD) to our 10- year MGS target yield of 3.60%. Given the challenging near-term Covid-19 situation that is affecting pure retail, we believe our above average spread is justified accounting for these potential risks, while the more stable MREITs are based on average SD.

Risks to our call include: (i) bond yield compression, vs. our target 10-year MGS yield, and (ii) strengthening rental income.

Source: Kenanga Research - 6 Aug 2021