HEKT’s  3QFY13  net  profit  was  in  line  with  expectations.  The  doubledigit 9M net profit growth was mainly attributed to the contribution from its  new  Kedah  malls.  Although  the  refurbishment  of  Central  Square could result in  a  lower contribution from the asset, we believe that the REIT’s DPU is likely to remain stable going forward. Maintain NEUTRAL, with an unchanged DDM-based MYR1.46 FV.

• Results in line. HEKT’s 3QFY13’s net profit of MYR11.1m (+11.7% y-oy; +2.7% q-o-q) brought its  9MFY13 net profit to MYR33.0m, in line with expectations.  HEKT  continued  to  record  double-digit  y-o-y  net  profit growth, driven by the incremental contributions from its two Kedah malls. Overall portfolio occupancy remained stable at 94.7% despite the  dip in occupancy  in  Central  Square  Shopping  Complex  (CS)  in  Kedah  to 80.9% in 3Q13 (vs 82.2% in 2Q13) due to ongoing refurbishment works. The  YTD rental reversion was healthy at 6% for the 9% of net lettable area (NLA) renewed thus far. HEKT announced a DPU of 2.6 sen for the quarter, still on track to meet our full-year forecast.
• Refurbishments  on  course  for  completion  in  mid-2014.  CS’ turnaround  plan  is  making  good  progress  as  some  23%  of  the refurbishment  works  has  been  completed  so  far.  The  exercise,  which covers  the expansion of  the mall’s  cinema and the conversion of empty spaces into new retail areas,  is slated  for completion  by 3Q14. Although occupancy may decline during the period of refurbishment, management believes  that  this  is  manageable  and  expects  occupancy  to  remain above  70%.  HEKT  is  also  expanding  the  cinema  in  Mahkota  Parade (MP) in Melaka, which currently has only a 4-screen cinema. This will be expanded to 10  screens by end-2Q14. We believe that the expansion of the cinemas  at  both CS and MP could boost shopper traffic, as proven by  the  doubling  of  shoppers  to  Subang  Parade  after  the  installation  of MBO Cinemas in 2011. The capex for refurbishments will be funded  by internally generated funds and bank borrowings.
• Maintain NEUTRAL.  No changes to our  forecasts. Maintain NEUTRAL, with  an  unchanged  DDM-based  FV  of  MYR1.46.  The  REIT’s  DPU  will likely  remain  stable  going  forward,  despite  the  possibility  of  lower contributions from CS arising from its upcoming refurbishment.

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Company Profile
Hektar REIT is a mid-cap retail REIT specialising in suburban malls. Its major assets include Subang Parade and Mahkota Parade.

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Source: RHB