FY21 RNI of RM84.5m came in within our and consensus’ expectation at 103% and 104%, respectively. FY21 dividend of 7.41 sen is also within estimate (at 103%). Maintain FY22E CNP of RM82.4m and introduce FY23E CNP of RM83.0m on marginal organic growth and limited downsides from minimal lease expiries. However, we remain cautious of the office segment over the long run given oversupply concerns. Downgrade to MARKET PERFORM and lower TP to RM0.900 (from RM0.935) on a higher 10-year MGS target of 3.9% (from 3.6%).

FY21 realised net income (RNI) of RM84.5m came in within our and consensus’ expectation at 103% and 104%, respectively. 2HFY21 GDPU of 3.98 sen per unit (which includes a non-taxable portion of 0.44 sen), brought FY21 GDPU to 7.41 sen which is also within expectation, at 103% of our FY21E GDPU of 7.2 sen, implying 8.1% gross yield.

Results’ highlights. YoY, FY21 top-line was down slightly by 3% due to lower revenue from QB3-BMW, PMK and Platinum Sentral. However, RNI was up by 4% mainly on lower financing cost (-12%), lower operating cost (-2%) and gains on disposal of QB5 of RM3.8m which was completed in April 2021. QoQ, 4QFY21 top-line was down slightly by 0.4% but higher property expenses (+33%) caused RNI to decrease by 14%. Gearing remained stable at 0.37x.

Outlook. The Group’s portfolio occupancy remains relatively stable at 90%. FY22-23 will see minimal lease expiries of 16-6% 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 REIT would be able to at least see marginal organic 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 FY22E CNP of RM82.4m and introduce FY23E CNP of RM83.0m. Earnings are driven by stable organic growth and occupancy of c.90% on flattish-to-mildly positive reversions. Our FY22-23E GDPU/NDPU of 7.2-7.2 sen / 6.5-6.5 sen imply attractive gross yield of 7.9% each (net yield of 7.2%).

Downgrade to MARKET PERFORM (from OUTPERFORM) and lower TP to RM0.900 (from RM0.935). Our TP is based on an unchanged FY22E GDPU and 4.1ppt spread but on a higher 10-year MGS target of 3.90% (from 3.6%), in line with our in-house estimates. We favour SENTRAL REIT for its resilient earnings which have remained stable given its low financing cost. The office segment has also been faring better than the retail and hospitality segments. However, we are cautious of its long-term prospects given the oversupply of office space in the Klang Valley and viable work-from-home arrangements which may decrease demand for office spaces over the longer run, which has been factored in our valuations.

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

Source: Kenanga Research - 21 Jan 2022