1QFY21 realised net income (RNI) of RM31.3m came in broadly within our and consensus expectations, at 18% and 17%, respectively. We expect to see a rebound pick-up in tenant sales with the opening up of the economy. No dividends, as expected. Maintain FY21-22E CNP of RM177- 200m. Maintain MARKET PERFORM with a slightly higher TP of RM1.40 (from RM1.30) as we roll forward the valuation base to FY22E. Our valuations are slightly conservative given the fluidity of the Covid-19 situation, especially in the near term.

1QFY21 realised net income (RNI) of RM31.3m came in broadly within our and consensus expectations, at 18% and 17%, respectively, as we expect 2HFY21 to see a pick-up in rental income and tenant sales with the opening up of the economy and roll -out of Covid-19 vaccinations. No dividend, as expected.

Results’ highlights. YoY, top-line was down by 6% on weakness from all assets due to MCO 2.0 from 13th Jan to 4th March 2021, while MCO 1.0 in FY20 only began in mid-March 2020 which affected tenants and occupancy. All in, RNI was down by 10%. QoQ, top-line was down by 4% due to similar reasons mentioned above, while operating cost was higher due to steeper operating expenses (+8%) resulting in RNI declining by 22%. Gearing remained stable at 0.35x.

Outlook. FY21 will see up to 20% of portfolio NLA expiring. We had expected 1QFY21 to be challenging due to MCO 2.0 amid the pandemic. Going forward, we expect to see improvements in 2HFY21 with potential easing of MCO amid proper vaccine roll-outs with noticeable pick-up in footfalls as shoppers adapt to the new normal.

Maintain FY21-22E CNP of RM177-200m on mildly negative reversions in FY21, and positive low single-digit reversions in FY22 from potential absence of rental rebates on assumption that the Covid- 19 situation would be resolved by then. Our FY21-22E GDPU of 6.1-6.9 sen (NDPU of 5.5-6.2 sen) imply gross yield of 4.4-4.9% (net yield of 3.9-4.4%).

Maintain MARKET PERFORM on a slightly higher TP of RM1.40 (from RM1.30). Our TP is higher as we roll forward our valuations to FY22E GDPS/NDPS of 6.9 sen/ 6.2 sen and +1.6ppt (at +0.5SD) to our 10-year MGS target yield of 3.30%. Given the challenging near- term Covid-19 situation that may affect pure retail especially those with struggling assets in the near term, we applied a wider spread to account for such potential risks, while more stable MREITs are based on average SD. As such, we are comfortable with our conservative earnings estimates and valuations and will continue to monitor the fluidity of the pandemic as it progresses.

Risks to our call include: (i) bond yield compression, vs. our target 10-year MGS yield, and (ii) strengthening rental income.

Source: Kenanga Research - 30 Apr 2021