9MFY21 RNI of RM65.6m came in within our expectation but marginally above consensus’ at 80% and 82%, respectively. No dividends, as expected. 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 stable earnings profile which still translates to attractive gross yield of 8.0% vs. peers’ average of 5.5%.

9MFY21 realised net income (RNI) of RM65.6m came in within our expectation but slightly above consensus’ at 80% and 82%, respectively. No dividends, as expected.

Results’ highlights. YoY-Ytd, top-line was down slightly by 3% due to lower revenue from QB3-BMW, Plaza Mont Kiara, Wisma Technip and Platinum Sentral. However, RNI was up by 8% on lower operating cost (-6%), lower financing cost (-14%) and gains on disposal of QB5 of RM3.8m which was completed in April 2021. QoQ, top-line bounced back up by 6.8%, likely due to rental deferments or rebates given in 2QFY21, but bottom-line declined by 2.3% with the absence of the RM3.8m disposal gain. Gearing remained stable at 0.37x (vs. 0.38x in 2QFY21).

Outlook. The Group’s portfolio occupancy remains relatively stable at 91%. 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. With minimal lease expiries, we believe that SENTRAL would be able to at least see flattish YoY earnings growth. The group remains diligent in managing cash flows and exercising financial discipline and on the lookout for accretive acquisition opportunities should the situation arise given its healthy balance sheet.

Maintain FY21-22E CNP of RM81.8-82.4m. Earnings are driven by stable organic growth and occupancy of c.90% on 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 (net yield of 7.2%).

Maintain OUTPERFORM and TP of RM0.935 on FY22E GDPU and 4.1ppt spread @ average SD to our 10-year MGS target of 3.6%. We continue to favour SENTRAL REIT for its resilient earnings which have remained stable throughout the pandemic in FY20 and 9MFY21 with earnings faring better than retail and hospitality MREIT peers. FY22 prospect is expected to be stable with minimal lease expiries, allowing the Group to maintain its stable earnings and attractive gross yields of 8.0% vs. other large cap MREIT peers of 4.7% to 7.5%.

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

Source: Kenanga Research - 11 Nov 2021