HEKT’s  full-year  results  met  expectations.  Although  overall  rental reversion  remained  healthy at about 7%, management  is guiding for  a flattish net profit growth for FY14, as revenue growth will likely be offset by anticipated higher property expenses. Nonetheless, HEKT expects to maintain a DPU of at least 10.5 sen for FY14. Maintain NEUTRAL with a revised DDM-based FV of MYR1.43 (from MYR1.46).

• Results  in  line.  HEKT’s  FY13  net  profit  of  MYR46.1m  (+16.0%  y-o-y) met  expectations.  It  continued  to  record  double-digit  y-o-y  earningsgrowth,  driven  by  incremental  contributions  from  its  two  Kedah  malls. Overall  portfolio  occupancy  remained  stable  at  95.0%.  FY13  rental reversion  was  healthy  at  7%  for  the  13%  of  net  lettable  area  (NLA) renewed. HEKT announced a DPU of 2.7  sen for the quarter,  bringing total FY13 DPU to 10.5 sen, which is in line with forecasts.
• Cautious 2014 outlook. HEKT anticipates a somewhat challenging year ahead, due to higher expenses. This is in line with the view of some of its peers.  Over  the  short  term,  HEKT  will  likely  have  to  absorb  all incremental  costs,  as  it  will  be  unable  to  pass  on  the  full  costs  to  its tenants.  However,  with  about  40%  of  its  NLA  up  for  renewal  in  FY14, HEKT  is  seeking  to  pass  on  some  of  the  costs  to  its  tenants  through higher  rental  rates.  Nonetheless, barring  further  subsidy  rationalisation measures by the Government, HEKT believes that it will still be able to maintain a DPU of at least 10.5 sen for FY14.  On a positive note, the major  refurbishment  of  Central  Square  in  Kedah  is  making  good progress,  with  about 45%  of the refurbishment works 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 2Q14.
• Earnings forecast.  We trim our FY14 earnings  estimate  by 2.2% after fine-tuning some assumptions. We also introduce our FY15 numbers.
• Maintain NEUTRAL.  We nudge down our DDM-based FV to MYR1.43 (from  MYR1.46)  after  our  earnings  revision.  Given  HEKT’s  past  track record,  we  believe  that  it  will  still  be  able  to  deliver  on  its  promise  to maintain its DPU of at least 10.5 sen going forward.

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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