• Maintain NEUTRAL and DDM-derived MYR1.42 TP, 3% upside. FY24 (Mar) earnings were in line with expectations. AME REIT recorded a slight decrease in earnings sequentially due to higher property expenses, but revenue increased from positive rental reversion and full-quarter contribution from a newly acquired property. We think valuation for the stock is fair at the current juncture, while news on acquisitions would provide a positive catalyst, especially with a low gearing ratio of just 15%.

• Results in line. 4QFY24 core profit of MYR9m (-2.1% QoQ, +0.6% YoY) brought FY24 earnings to MYR35.5m. This is in line with expectations at 103% of our full-year forecasts. The REIT announced a DPU of 1.87 sen, bringing the full year total to 7.35 sen.

• Results review. On a QoQ basis, revenue increased 1% mainly due to the full- quarter contribution from Plot 16 Indahpura (acquired on 16 Oct 2023), but the NPI was 1.2% lower due to higher operating expenses in the quarter. On a YoY basis, revenue increased 15.9% thanks to the additional contribution from two other properties acquired at the end of Mar 2023, but earnings only increased by 0.6%, brought down by the higher financing costs from the acquisitions (4QFY24: -MYR1.3m, 4QFY23: -MYR0.3m). Do note that cumulative YoY comparisons are not available as the REIT was only listed on 20 Sep 2022.

• High renewal rate. There are minimal concerns with occupancy rate, with AME REIT enjoying a 99% committed occupancy rate and 98% occupancy rate for its industrial properties and dormitories. For FY25, there are only two tenancies expiring that make up 5% of its total gross income, so while this provides protection from downside risks to occupancy, upside risks to rental reversions should also be limited as typical rental agreements have an agreed 9-10% rental step up every 10 years. Therefore, we hope to hear more news on acquisitions to provide inorganic growth.

• Gearing. AME REIT’s gearing ratio has increased to 14.8% (FY23: 11.4%). We estimate that the REIT has a financing headroom of MYR500m for more acquisitions before hitting the 50% gearing limit and needing to raise funds through equity.

• Earnings estimates. We make no changes to our earnings estimates as results are in line. Our TP incorporates a 2% ESG premium, based on our ESG score of 3.1 for the REIT. Key risks: Slower/faster-than-expected pace of acquisitions, pickup/slowdown in economic growth, and higher/lower-than- expected rental reversions.

Source: RHB Research - 25 Apr 2024