6MFP21 realised net income (RNI) of RM57.8m came in broadly within our and consensus expectations at 22% and 19%, respectively, as we expect a better 2HCY21. Dividend of 1.67 sen is also broadly within at 23%. Expect mildly negative reversions and rental rebates for retail in the near term, but stronger 2HCY21 on a recovery post vaccine roll-out which should lead confidence back to the retail and hospitality segments. Maintain FP21E and FY22E CNP of RM258m and RM271m, respectively. UNDERPERFORM with TP of RM1.10 kept.

6MFP21 realised net income (RNI) of RM57.8m came in broadly within our and consensus’ estimate at 22% and 19%, respectively, on expectations of recovering retail sales in coming quarters, particularly 2HCY21 upon the roll-out of Covid-19 vaccines and confidence returning to retail and hospitality segments. Note that FP21E consist of 6 quarters or 18 months as the Group is altering its FY-end to Dec (from June). Dividend of 0.77 sen (which includes a 0.32 sen non-taxable portion), which came in broadly within brought 6MFP21 dividend to 1.67 sen at 23% of our estimate of 7.2 sen for FP21E.

Results’ highlight. YoY-Ytd, top-line was down by 35% dragged by: (i) retail (-37%) and (ii) hospitality (-77%) segments, but the office (+22%) and services (+3%) segments remained positive. All in, RNI was down by 60% despite lower operating cost (-8%) and financing cost (-18%) post placement. QoQ, top-line was down by 11% weighed down by the weak retail segment post imposition of CMCO in Oct 2020, but other segments saw positive improvements with the hospitality segment stronger (+184%) solely on the guaranteed income accrued for Sunway Clio despite the weaker other hospitality assets, office segment (+39%) and services (+0.5%). However, lower operating cost (-24%) and finance cost (-3%) on lower interest rates, cushioned the impact to bottom-line which was only down by 3%.

Outlook. We remain cautious for FP21E especially in the near term due to the MCO. 3QFP21 is expected to improve gradually with the latest news yesterday on the re-opening of the retail sector and dine-in being allowed, while 4Q-6Q is expected to be better premised on the roll-out of vaccines which should deliver confidence back to the retail and hospitality segments. The office and services segments are expected to remain stable.

Maintain FP21E-FY22E CNP of RM258-271m. We expect mildly negative reversions and increased rebates in the near term (1Q to 3Q), while full-year expectations are expected to be flattish for now. The hospitality segment is expected to see 30% occupancy while the office and industrial segments are expected to remain stable for now. FP21E/FY22E NDPU of 6.4-6.8 sen provides 4.6-4.8% net yield.

Maintain UNDERPERFORM and TP of RM1.10. Our TP is based on CY21E GDPS/NDPS of 5.8 sen/5.2 sen and an unchanged +2.2ppt spread on a lower 10-year MGS target of 3.10%. Our applied spread is at +1.5SD, on par with pure retail MREITs under our coverage to account for earnings risk in light of the Covid-19 pandemic, considering its exposure to the retail and weak hospitality segments.

Risks to our call include: (i) bond yield compression, and (ii) stronger- than-expected earnings in retail, hospitality and office divisions.

Source: Kenanga Research - 10 Feb 2021