INVESTMENT HIGHLIGHTS

• 9MFY17 earnings slightly below estimates

• Higher ytd expenses led to 7.5% decline of core net profit

• Lower earnings forecast by -5.0% and -2.9% to account for higher expenses

• Maintain BUY with lower TP of RM1.11

9MFY17 earnings slightly below estimates. AmanahRaya REIT’s (ARREIT) 9MFY17 core net income of RM25.0m was slightly lower than our forecast, making up 69.7%% of our full year estimates. Comparison to consensus estimate is unavailable. ARREIT announced distribution per unit (DPU) of 1.40sen for 3QFY17, bringing total DPU to 4.16sen for 9MFY17.

Higher ytd expenses led to 7.5% decline of core net profit.

9MFY17 topline improved by 5.2%yoy to RM45.2m, driven by income contribution from newly acquired assets namely Deluge Factory in Johor, Toshiba TEC in Bandar Glenmarie, and Contraves Building in Cyberjaya. However, core net income for 9MFY17 fell by 7.5%yoy to RM25.0m, mainly due to higher property and non-property expenses. Property expenses rose to RM4.5m from RM3.0m a year ago due to higher assessment, quit rent and other property operating expenses. Trust expenses also increased by 12.7% to RM16.9m.

Lower earnings forecast by -5.0% and -2.9% to account for higher expenses. We take into consideration of higher expenses and thus adjust our earnings forecast downwards by 5.0%/2.9% for FY17F/FY18F respectively. Nonetheless we make no changes to our revenue forecast as the new acquisitions are making positive contribution to ARREIT.

Maintain BUY with lower TP of RM1.11. Due to the adjustment in our earnings estimates, we reduce our TP from RM1.15 o RM1.11 to include the assumption of higher expenses. Our TP is based on DDM model (required rate of return: 7.7%, terminal growth rate: 1%). We maintain our BUY recommendation on ARREIT for its diversified assets base with exposure to education property. Dividend yield of ARREIT is also attractive at 5.6%.

Source: MIDF Research - 27 Nov 2017