FY21 realised net income (RNI) of RM200.1m came in within our (96%) and consensus (95%) expectations. FY21 GDPU of 6.03 sen is also within (99%). Maintain FY22E CNP of RM293m and introduce FY23E CNP of RM299m. Downgrade to MARKET PERFORM (from OUTPERFORM) on a lower TP of RM1.60 (from RM1.70) on a higher 10-year MGS target of 3.90% (from 3.60%) in line with our in house estimates.

FY21 realised net income (RNI) of RM200.1m came in within our expectation at 96% and consensus at 95%. A 4QFY21 dividend of 2.17 sen was declared, which included a 0.01 sen non-taxable portion which brought FY21 dividends to 6.03 sen, which is also within at 99% of our FY21 estimate of 6.07 sen, implying 3.9% gross yield.

Results’ highlight. YoY-Ytd, top-line was down by 14% as a result of lockdowns which affected tenants operations from Jan to August 2021, while FY20 saw rental weakness since mid-March to May 2021 due to the pandemic. As a result, RNI was down by 15% on the back of flattish financing cost. QoQ, GRI bounced back by 25% on less rental support provided to tenants during the quarter given that most shops began opening since August onwards. All in, RNI increased by 91%. Gearing remained stable at a low level of 0.23x.

Outlook. With the smooth reopening of malls spaces in 4QFY21, footfall traffic is expected to increase gradually over the year as the Covid-19 situation becomes more manageable and helped by high national vaccination rates. FY22 will see 23% of leases expiring at Mid Valley and 45% at The Gardens which the Group has already secured close to half of the leases up for expiry. We do not expect the acquisition of Southkey Mall in Johor to happen in the near term as the pandemic may have pushed back the timeline for this acquisition for now, likely to FY24-25.

Maintain FY22E CNP of RM293m and introduce FY23E CNP of RM299m on flattish to low single-digit positive reversions and the expectation of less rental holidays compared to FY20 and FY21. Our FY22-23E GDPU of 8.24-8.37 sen (NDPU of 7.42-7.54 sen) suggest gross yield of 5.4-5.5% (net yield of 4.8-4.9%).

Downgrade to MARKET PERFORM (from OP) on a lower TP of RM1.60 (from RM1.70) on FY22E GDPS/NDPS of 8.24 sen/7.42 sen but on a higher 10-year MGS target of 3.9% (from 3.6%) in line with our in house estimates. Our applied spread is at +0.5SD, on par with other pure retail MREITs under our coverage as we remain mildly cautious at this juncture. That said, FY22 is set to be a recovery year and we will continue to monitor the situation closely as proper handling of the pandemic and vigilant supervision of SOPs remain vital to avoid renewed disruptions to malls’ operations and hence earnings.

Risks to our call include: bond yield expansion, weaker-than- expected rental reversions.

Source: Kenanga Research - 27 Jan 2022