Hektar REIT’s 9M14 net profit came in line at 72%/74% of our/consensus estimates. Earnings growth stayed flattish as it continued to be affected by Central Square’s ongoing refurbishments.  Nonetheless,  we  believe that  earnings  should  come  in  stronger  in  FY15.  Management  has reaffirmed  its  commitment  to  a  10.5  sen  dividend  payout  for  FY14. Maintain NEUTRAL and DDM-based TP of MYR1.43 (6.6% downside). 
 
Results  in  line.  Hektar REIT’s 3Q14  net  profit  of  MYR10.9m  (-2.1% YoY,  -5.2%  QoQ)  brought  9M14  net  profit  to  MYR32.8m  (flat  YoY), coming  in  at  72%/74%  of  our/consensus  estimates.  9M14  revenue growth  was  flattish  as  it  continued  to  be  affected  by  disruptions  from Central  Square’s  (CS)  ongoing  asset  enhancement  initiatives  (AEI). 9M14 net property income (NPI) was still stable at 59.7% (9M13: 60.2%), although  earnings  were  slightly  affected  by  the  electricity  tariff  hike. Meanwhile,  it  has  announced  a  DPU  of  2.60  sen  for  3Q14,  on  track  to meet our full-year forecast. Its overall portfolio occupancy is still stable at 94.5%, and the average rental reversion is about 7% YTD.  

No  surprises  expected  going  into  4Q14.  Hektar  REIT  continues  to make  good  progress  on  the  AEI  front.  The  AEI  for  CS  is  almost completed,  with  only  the  cinema  yet  to  complete  its  fit-out. The  positive impact  from  the  AEI  has  started  to  show,  as  it  recently  managed  to secure a new tenant at double the rental rate of the previous tenant. We reiterate our view that the full impact from this refurbishment should only be seen from 1Q15 onwards. Mahkota Parade’s AEI, which will see the expansion  of  its  cinema  to  10  screens  (from  four  currently),  is  well underway.  Management  expects  the  cinema  extension  works  to  be completed  in  January.  Overall,  although  earnings  will  likely  remain flattish going into 4Q14, management reaffirms its commitment to a DPU of at least 10.5 sen for FY14.  

Earnings forecasts. We make no changes to  our FY14/FY15 earnings forecasts. We have also introduced our FY16 forecasts.

Maintain  NEUTRAL.  Our  DDM-based  TP  is  unchanged  at  MYR1.43. Given Hektar REIT’s past track record, we are still confident with its DPU 
delivery.

Financial Exhibits

Financial Exhibits

SWOT Analysis

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