KEY INVESTMENT HIGHLIGHTS

• 9MFY19 CNI missed forecast

• Earnings for the cumulative period climbed 3.6%yoy to RM27.1m

• 3QFY19 CNI rose by 5.1%yoy to RM9.1m

• Downgrade to NEUTRAL from BUY with a revised TP of RM0.79 (previously RM0.91)

9MFY19 CNI missed forecast. Amanahraya REIT’s (AARET) core net income for the first nine months came below our estimates at 70% of our full year forecast. No comparison is available. A DPU of 1.5 sen was announced, bringing ytd DPS to 4.5 sen, which is also below our full year expectation of 6.6 sen. The negative deviation can be attributed to a longer-than-expected loss of rental from Holiday Villa Alor Star and Wisma AIC.

Earnings for the cumulative period climbed 3.6%yoy to RM27.1m as revenue increased by 3.0%yoy to RM72.0m. Property expenses continue to climb by 7.3%yoy to RM13.5m due to higher maintenance costs that include statutory payments, property management fees and refurbishment costs incurred at Help University, Toshiba Building, Segi University, Selayang Mall and Vista Tower. This resulted in a marginally lower net property income of RM58.5m, which is a reduction of 1.3%yoy.

3QFY19 CNI rose by 5.1%yoy to RM9.1m although revenue dipped by 1.5%yoy to RM24.1m. The lower revenue can be attributed to the loss of rental income from Holiday Villa Alor Star and Wisma AIC, which are vacant but this is mitigated by the income from Vista Tower. Property trust expenses was higher yoy due to the higher maintenance and repair expenses at Vista Tower, Help University and Contraves Building, resulting in net property income (NPI) that dropped by 3.5%yoy. However, non-property expenses are lower due to lower cost of borrowings. Qoq, CNI improved by 2.5% while revenue changed little at -0.4%.

Earnings estimates trimmed by 6.2% for FY19E and 4.8% for FY20F as CNI did not grow as fast as we had expected previously. Our revised CNI estimates now stand at RM36.6m and RM37.7m respectively.

Source: MIDF Research - 26 Nov 2019