18MFP21 realised net income (RNI) of RM221.9m came in above our expectation at 119% as 6QFP21 results were much stronger than expected. 18MFP21 dividends were also above expectation at 118%. Going forward, we expect continuous earnings improvements with the reopening of the economy driven by the Group’s retail segment. Maintain FY22E RNI and introduce FY23E RNI of RM297m driven by stable organic growth. Maintain MP but on a slightly lower TP of RM1.30 (from RM1.35) on a higher 10-year MGS target of 3.90%.

18MFP21 realised net income (RNI) of RM221.9m came in above our expectation at 119% but below consensus at 88% as 4QCY21 and 6QFP21 was stronger than we anticipated, on less rental rebates since the economy re-opened in August 2021. 6QFY21 announced dividend of 2.80 sen brings 18MFP21 dividend to 6.1 sen, which is also above expectation at 118% of our estimate. Note that FP21 consist of 6 quarters or 18 months as the Group is changing its FY-end to Dec (from June).

Results’ highlight. YoY, top-line was up by 65% from the recognition of unrealised unbilled lease income receivable amounting to RM19.6m. Excluding this, 6QFY21 revenue was higher by 44.3% or RM42.4m mainly driven by the retail segment (63%) upon the reopening of the economy this quarter, while the hotel (24%) and office (31%) segments also saw improvements. This led to RNI increasing by 137% on improved RNI margin of 43% which is closer to pre-Covid levels of 46-47% (vs. 2QFP21 of 29.7%). QoQ, top-line was up by 48% mainly on better contributions from the retail segment with the reopening of the economy, while lower operating cost (-4.6%) contributed to a better RNI which was up by 89%.

Outlook. Going forward, we expect the economy reopening to continue as long as vaccination rates are kept up and SOPs are adhered to. As such we expect improved shopper traffic, and better hotel occupancy rates. That said, we do not discount the possibility of further rental rebates in coming months. The office and services segments are also expected to remain stable.

Maintain FY22E RNI of RM271m and introduce FY23E RNI of RM297m. We expect earnings growth for FY22E RNI to be driven by the absence of rental holidays for retail mainly, as well as improving occupancy rates for hospitality (to 60% from 32% currently) and offices (to 90% from 84% currently). FP22E/FY23E NDPU of 6.8-7.4 sen provides 4.9-5.3% net yield.

Maintain MARKET PERFORM but on a slightly lower TP of RM1.30 (from RM1.35). Our TP is based on an unchanged FY22E GDPS/NDPS of 7.5 sen/6.8 sen and spread of +1.9ppt (at +0.5SD) 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 to account for the fluidity of near-term earnings weakness which still remains challenging for the hospitality segment while we do not discount the possibility of further rental holidays depending on the pandemic situation.

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 - 31 Jan 2022