INVESTMENT HIGHLIGHTS

• 1HFY19 earnings are in-line

• 1HFY19 earnings inched up 2.8%yoy to RM18.0m

• 2QFY19 CNI fell by 4.8%yoy to RM8.9m

• Maintain BUY with an unchanged TP of RM0.91

1HFY19 earnings are in-line. AmanahRaya REIT’s (ARREIT) core net income (CNI) of RM18.0m met our expectation, making up 47% of our full year estimates. Comparison to consensus estimate is unavailable. ARREIT announced a distribution per unit (DPU) of 1.50 sen for 2QFY19, bringing ytd DPS to 3.0 sen. This is also within our full year DPS estimates.

1HFY19 earnings inched up 2.8%yoy to RM18.0m due to revenue that increased by 5.5%yoy to RM48.0m. This can be attributed to higher rental income from Vista Tower, which offsets the loss of rental income from Holiday Villa Alor Star and Wisma AIC. CNI did not climb as much as revenue due to a 10.5% increase in property expenses and interest income and other income that dropped RM0.6m or 15.9%yoy. Gearing ratio declined to 43.6% from 44.5% in the quarter before.

2QFY19 CNI fell by 4.8%yoy to RM8.9m even though revenue improved by 2.6%yoy to RM24.2m because of higher property expenses and lower interest income. Sequentially, rental income dipped by 2.2%qoq due to the loss of rental income from Holiday Villa Alor Star and Wisma AIC. The lower qoq CNI can also be due to higher maintenance and repair incurred at Vista Tower, Help University and Contraves Building.

Earnings maintained as we make no changes to our assumptions at this juncture. The REIT manager is looking to sell the AIC factory, which is vacant as well as the Gurun Automotive Warehouse that carry the fair values of RM26.8m and RM8.8m respectively.

Maintain BUY with an unchanged TP of RM0.91 as we make no changes to our earnings estimates. Our DDM-derived valuation (required rate of return: 8.4%, terminal growth rate: 1%) is unchanged. We maintain our BUY recommendation on ARREIT for its diversified assets base. Dividend yield of ARREIT is also attractive at 7.2%.

Source: MIDF Research - 3 Sept 2019