INVESTMENT HIGHLIGHTS

• FY17 earnings missed estimates

• Higher ytd expenses led to 10% decline of core net profit

• Including contribution from Vista Tower

• Maintain BUY with higher TP of RM1.12 (previously RM1.09)

FY17 earnings missed estimates. AmanahRaya REIT’s (ARREIT) FY17 core net income of RM31.8m missed our forecast, making up 93% of our full year estimates. Comparison to consensus estimate is unavailable. ARREIT announced distribution per unit (DPU) of 1.32sen for 4QFY17, bringing total DPU to 5.50 sen for FY2017.

Higher expenses led to 10% decline of core net profit. FY17 topline improved by 5.3%yoy to RM60.4m, 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 FY17 fell by 10.0%yoy to RM31.8m, mainly due to higher property and non-property expenses. Property expenses jumped by 76% to RM7.2m from RM4.1m a year before due to higher major repair cost for the HELP University asset. Income after tax was higher by 83% due to the jump in fair value of its assets amounting to RM42.6m.

Including contribution from Vista Tower. We have included the contribution from Vista Tower at The Intermark into our earnings assumption and raised our FY18F CNI estimate by 6.2% to RM41.0m to account for the earnings contribution from Vista Tower. The acquisition was completed in January. Recall that the purchase was announced in September 2017. ARREIT had announced to buy the 63-storey Grade A office tower for RM455m. The iconic building is strategically located at Jalan Tun Razak.

Maintain BUY with higher TP of RM1.12 (previously RM1.09). Due to the adjustment in our earnings estimates from the addition of Vista Tower, we increase our TP from to RM1.12. 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. Dividend yield of ARREIT is also attractive at 7.0%.

Source: MIDF Research - 19 Feb 2018