KEY INVESTMENT HIGHLIGHTS

• 9MFY24 earnings within expectations
• Commendable earnings
• Earnings estimates maintained
• Positive earnings outlook
• Maintain BUY with a revised TP of RM1.69

9MFY24 earnings within expectations. Pavilion REIT 9MFY24 core net income of RM150.3m came in within our expectation but slightly below consensus, making up 74% and 69% of our and consensus estimates respectively. No distribution per unit (DPU) was announced for 3QFY24 due to its bi-annual distribution policy.

Commendable earnings. Sequentially, 3QFY24 core net income increased to RM78.9m (+17.6%qoq), in line with higher topline (+3%qoq). The higher sequential earnings were mainly lifted by higher contribution from Pavilion KL Mall and Elite Pavilion Mall. Earnings from the two assets were supported by higher rent revenue and higher advertising income after re-commission of the upgraded LED screen at Elite Pavilion Mall. Besides, earnings were also lifted by reversal of doubtful debt in 3QFY24. On yearly basis, 3QFY24 core net income was higher (+11.8%yoy), bringing cumulative core net income in 9MFY24 higher at RM229.2m (+12.6%yoy). The higher earnings were driven by higher contribution from Pavilion KL Mall on the back of positive rental reversion and high shopper footfall. Besides, the earnings contribution from Pavilion Bukit Jalil which was acquired on 1st June 2023 supported earnings growth. Nevertheless, the higher utilities expenses and maintenance expenses have partly offset the earnings growth.

Earnings estimates maintained. We maintain our earnings forecast for FY24F/25F/26F. Earnings outlook for Pavilion REIT remains positive with solid contribution from Pavilion KL Mall and improving contribution from Pavilion Bukit Jalil Mall which driven by positive rental reversion and better occupancy rate. Meanwhile, the absence of high-value goods tax in Budget 2025 announcement will keep consumer spending at the high-end malls intact and supports tenant sales at Pavilion KL Mall.

Maintain BUY with a revised TP of RM1.69. We revise our TP for Pavilion REIT to RM1.69 from RM1.60 as we adjust our terminal growth rate higher in our Dividend Discount Model in view of the better prospect for Pavilion REIT. We maintain our BUY call on Pavilion REIT as earnings outlook remains promising with stable contribution from Pavilion KL Mall while the growing contribution from Pavilion Bukit Jalil provides upside to the earnings growth. Meanwhile, net distribution yield remains attractive at 5.2%.

Source: MIDF Research - 25 Oct 2024