Hektar REIT’s 1QFY13 net profit of MYR11.1m came within expectations. A DPU of 2.60 sen was declared, in line to meet our full-year FY13 DPU forecast. Contribution from its recently-acquired Kedah malls led to a 13.7% y-o-y growth in net profit. Occupancy and rental reversions were stable during the quarter. Maintain NEUTRAL with unchanged fair value of MYR1.56.

♦  No surprises; announced DPU of 2.60 sen. Hektar REIT’s 1QFY13 net profit of MYR11.1m (+13.7% y-o-y; +2.3% q-o-q) came in within expectations. Hektar announced a DPU of 2.60 sen for the quarter, in line with our full-year FY13 forecast of 10.70 sen.

♦  Double-digit y-o-y earnings growth due to the contribution from Kedah malls. Hektar continued to reap the benefits from the acquisition of the Kedah malls as well as positive rental reversions for its other assets, leading to a y-o-y net profit growth of 13.7%. Portfolio occupancy remained stable at 95.5%. Hektar recorded an average portfolio rental reversion of 8% for the 3% NLA renewed during the quarter, mainly due to Subang Parade’s healthy reversion of 15% after a tenant remixing exercise. However, this was slightly dragged down by Mahkota Parade’s negative reversion of 2% as a result of an increase in competition.  

♦  Kedah malls refurbishments. As highlighted before, the Manager has allocated about MYR19m for the asset enhancement initiatives (AEI) of Central Square (CS) mall in Sungai Petani. The AEI includes increasing the cinema to nine screens (from three currently). The AEI exercise is expected to start in 2HFY13, and will take about 12 months. We expect a significant upside potential to the rental rates for CS post-refurbishment, given Hektar’s proven track record with Wetex Parade. Wetex Parade has managed to double its average rental rates after undergoing a major AEI in FY10. We expect the positive impact from the refurbishment to kick in from 2H14 onwards.  

♦  Investment case.  We maintain our earnings forecast. We reiterate our NEUTRAL call on Hektar with an unchanged fair value of MYR1.56. Its undemanding valuations against the larger retail REITs and resilient dividend yield remain Hektar’s key selling points. Hektar’s Manager remains committed to maintaining a DPU of at least 10.50 sen for FY13.

Source: RHB