12MFP21 realised net income (RNI) of RM118.2m came in within our expectation at 66% but below consensus at 50%. 12MFP21 dividends are also within at 63%. We expect near term earnings weakness, especially in 3QFY21 but expect things to gradually improve throughout FY21 and FY22 given the gradual reopening of the economy and should things maintain this current trajectory. Earnings unchanged. Maintain MP and TP of RM1.35 on a +1.9ppt (+0.5SD) to the MGS target due to the uncertainty of the pandemic.

12MFPE21 realised net income (RNI) of RM118.2m came in within our estimate at 66% but below consensus at 50% likely on their expectations of stronger quarters ahead. 4QFY21 announced dividend of 1.63 sen brings 12MFP21 dividend of 3.30 sen, which is within at 63% of our estimates. Note that FP21E consist of 6 quarters or 18 months as the Group is changing its FY-end to Dec (from June).

Results’ highlight. YoY-Ytd, top-line was down by 24% dragged by: (i) retail (-32%) and (ii) hospitality (-51%) segments, while the office (+51%) and services (+3%) segments remained positive. The impact to bottom line was exacerbated with net income falling 48% on the back of slightly higher operating cost (+5%). QoQ, top-line was fairly flattish (-0.8%) but RNI declined by 10.5% on higher other operating expense (+10.2%). Gearing remains stable at 0.37x.

Outlook. The outlook for 3QCY21 is expected to be challenging due to the recent MCO which was over the months of July and August where most of the malls and hotels were closed, save for essential services. However, with the recent gradual reopening of the economy since August and fast paced roll-out of vaccinations, we expect shopper traffic to continue to increase throughout the year with the return of revenge spending, especially during the holiday period in 4QCY21, while FY22E earnings are expected to remain intact for now. The office and services segments are also expected to remain stable.

Maintain FP21E CNP of RM178m and FY22E CNP of RM271m on near-term weakness. We anticipate further short-term weakness for the next quarter, but with the fast-paced roll-out of vaccinations and reopening of the economy in time for the holiday season in 4QCY21. The hospitality segment is expected to remain challenging, seeing 25% occupancy while the office and industrial segments are expected to remain stable for now. We believe FY22E CNP should remain intact for now assuming the current trajectory of economic recovery maintains. FP21E/FY22E NDPU of 4.4-6.8 sen provides 3.1-4.7% net yield.

Maintain MARKET PERFORM and TP of RM1.35. Our TP is based on an unchanged FY22E GDPS/NDPS of 7.5 sen/6.8 sen on spread of +1.9ppt (at +0.5SD) on 10-year MGS target of 3.60%. Our applied spread is to account for the fluidity of near-term earnings weakness in light of the Covid-19 pandemic, considering its exposure to the retail and weak hospitality segments.

Risks to our call include: (i) bond yield compression and expansion, and (ii) stronger or weaker-than-expected earnings in retail, hospitality and office divisions.

Source: Kenanga Research - 1 Sept 2021