INVESTMENT HIGHLIGHTS

• 1QFY18 earnings missed estimates

• Higher revenue from Vista offset by increase in expenses

• FY18F CNI trimmed by 9.8% to RM37.0m to factor in higher property expenses

• Maintain BUY with adjusted TP of RM0.94 (previously RM0.96)

1QFY18 earnings missed estimates. AmanahRaya REIT’s (ARREIT) core net income (CNI) of RM8.2m missed our forecast, making up 19.9% of our full year estimates. Comparison to consensus estimate is unavailable. ARREIT announced distribution per unit (DPU) of 1.35sen for 1QFY18, which is slightly below our expectation.

Higher revenue from Vista offset by increase in expenses. CNI for 1QFY18 dipped 2.0% to RM8.2m yoy although revenue jumped 44.1% to RM21.9m. The climb in ARRET’s revenue is mainly due to the contribution from Vista Tower, which had started since 16 January this year. It is however neutralised by the increase in property expenses from major repair and refurbishment cost incurred mainly for HELP University, Selayang Mall and Holiday Villa Langkawi. Compared to the previous quarter, CNI improved 20.2% mainly due to the addition of Vista Tower as revenue surged 45.4%.

FY18F CNI trimmed by 9.8% to RM37.0m to factor in higher property expenses. Property expenses increased to RM4.1m from RM1.3m previously due to the major refurbishment cost from HELP University. Non-property expenses mainly from financing expenses also rose during the period. We had factored in higher interest rate for this year following the recent OPR hike.

Maintain BUY with adjusted TP of RM0.94 (previously RM0.96). Due to the adjustment in our earnings estimates and expenses assumption, our DDM-derived (required rate of return: 7.7%, terminal growth rate: 1%) TP has been adjusted to RM0.94. We maintain our BUY recommendation on ARREIT for its diversified assets base. Dividend yield of ARREIT is also attractive at 6.8%.

Source: MIDF Research - 31 May 2018