FY21 realised net income (RNI) of RM125.9m came in above our expectation (114%) and consensus (110%) as 4QFY21 was stronger than expected. FY21 dividend of 4.41 sen was also above at 113%. Maintain FY22E CNP of RM200m and introduce FY23E CNP of RM208m. Maintain MARKET PERFORM but on a lower TP of RM1.25 (from RM1.30) as we increase our 10-year MGS target to 3.90% (from 3.60%).

FY21 realised net income (RNI) of RM125.9m came in above our expectation (114%) and consensus (110%) as 4QFY21 earnings were stronger than expected with the reopening of malls, holiday season shopping and revenge buying. 2HFY21 dividend of 2.58 sen (which includes a non-taxable portion of 0.07 sen) brought FY21 dividend to 4.41 sen, which also came above our expectation of 3.89 sen (113%), implying 3.5% gross yield.

Results’ highlights. YoY, FY21 top-line was down by 4% on proportionately weaker contributions from all retail assets, while the office asset remained flattish. However, lower operating cost (-9%) and lower financing cost (-8%) due to lower borrowing rates caused RNI to increase by 8%. QoQ, 4QFY21 top-line was up by 10% as the economy started reopening, coupled with holiday shopping and revenge buying during the year-end season. As a result of lower rental holidays during that period as well, RNI increased by 171%. Gearing remained flat at low level of 0.35x.

Outlook. FY22 is a major lease expiry year for the group with up to 55% of NLA up for expiry. We are cautiously optimistic as this would be challenging for strong rental reversions but we take comfort in the fact that resumption of economic activity and strong 4QFY21 earnings should bode well for reversions in FY22. As such, we will continue to monitor the situation more closely as disruptions to economic activity from a pandemic resurgence would be negative for the Group.

Maintain FY22 CNP of RM200m and introduce FY23E CNP of RM208m. We expect earnings growth in FY22-23 from positive low single-digit reversions and the absence of rental rebates. Our FY22- 23E GDPU of 3.9-6.9 sen (NDPU of 6.2-6.4 sen) imply gross yield of 5.5-5.7% (net yield of 5.0-5.1%).

Maintain MARKET PERFORM but on a lower TP of RM1.25 (from RM1.30) as our valuations are based an unchanged FY22E GDPS/NDPS of 6.9 sen/6.2 sen and +1.6ppt (at +0.5SD) to a higher 10-year MGS target yield of 3.90% (from 3.60%), in line with our in- house estimates. We remain cautiously optimistic as 4QFY21 earnings could be a good indication for the coming quarters as the economy is reopening with less likelihood of harsh MCO and mall closures. Still, we are cautious of unforeseen disruptions that could have a negative impact to rental given large lease expiries in FY22.

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

Source: Kenanga Research - 28 Jan 2022