• Keep BUY, new MYR1.42 TP from MYR1.40, 13% upside and c.6%FY24F (Mar) yield. 1H24 results were in line with expectations, recordingstable sequential income as occupancy rates remained at 100%. AME REIThas completed the MYR27m acquisition of Plot 16 Indahpura, which willstart contributing income in 3QFY24. We keep our rating on the stockpremised on its stable occupancy levels and inorganic growth opportunities.

• Results review. 2QFY24 core profit of MYR8.4m (flat QoQ) was in line withour expectations at 49% of our full-year estimates. YoY comparisons arenot available as the REIT was only listed on 20 Sep 2022. On a QoQ basis,the REIT recorded 3% higher revenue from positive rental reversions andreplacements of tenancies at higher rental rates. NPI margin was slightlylower at 91.6% (1QFY24: 94%) due to higher operating expenses. TheREIT announced a DPU of 1.8 sen for the quarter (1HFY24: 3.6 sen),representing a 99.8% dividend payout ratio.

• Expecting full lease renewals. Of the 12 tenancies expiring in FY24, theREIT has renewed leases with seven existing tenants, and obtained areplacement for one exiting tenant. This represents 66% of the total spaceup for renewal, and management is confident it will be able to secure thefour remaining renewals. Only two tenancies are expiring in FY25F,suggesting minimal downside risks for occupancy.

• Plenty of room for inorganic growth. The acquisition of Plot 16 Indahpura(purchase consideration: MYR26.5m) was completed on 16 Oct. Theproperty has a lease term of 10 years with a renewal term of three years.Consequently, the REIT’s assets under management increased toMYR668m. Gearing was at only 11.4% as at 2QFY24. Following thisacquisition, we estimate that the REIT has a financing headroom ofMYR480m for further acquisitions before reaching the 50% gearing limit.

• Earnings estimates. We increase our FY24-26F earnings forecasts slightlyby 1% after adjusting our cost assumptions.

• ESG. Our TP incorporates a 2% ESG premium, based on our ESG scoreof 3.1 for the REIT (above the 3.0 country median).

• Key downside risks: Unexpected slowdown in economic growth,increased competition, loss of key tenants, and slow pace of acquisitions.

Source: RHB Securities Research - 9 Nov 2023