• Keep BUY and MYR1.57 TP, 12% upside and 6% FY26F (Mar) yield. AME REIT's 9MFY25 earnings came in line, with stable earnings underpinned by its fully occupied properties. We continue to like the REIT as a defensive play, with upside from its inorganic growth prospects as it leverages on the pipeline of new developments from its sponsor. After the completion of its ongoing acquisitions, the expected gearing ratio of just 27% is among the lowest of M-REITS under our coverage, providing room for more acquisitions.
• Results in line. 3QFY25 core profit of MYR9.2m (flat QoQ and YoY) brought 9MFY25 earnings to MYR27.2m (+2% YoY). This was in line with expectations, at 73% of our full-year forecasts. The REIT announced a DPU of 1.89 sen, bringing the YTD total to 5.6 sen (9MFY24: 5.5 sen).
• Results review. On a YoY basis, revenue increased by 3% driven by the completed acquisition of Plot 16 Indahpura in Oct 2023 as well as positive rental reversions across its portfolio. While still ideal, NPI margins were slightly lower at 92% (3QFY24: 93.4%) due to the higher assessment costs and maintenance expenses, while financing expenses increased by MYR200k YoY due to additional borrowings to fund the acquisitions.
• Organic and inorganic growth opportunities. We think downside risks are minimal with occupancy rates remaining full. As such, we think the leases due for renewal in FY26 and FY27 (30% and 20% of the REIT's gross rental income) provide an opportunity to record higher rental rates. While compressed yields may limit opportunities for external acquisitions, the REIT should benefit from the pipeline of new developments from its sponsor. AME REIT is currently in the process of acquiring MYR120m worth of assets in Iskandar Malaysia from its sponsor, which is expected to be completed in phases by Sep 2025.
• Gearing. As at end-Dec 2024, the REIT had a gearing ratio of 14.9%, which we estimate will increase to 27% following the completion of the proposed acquisitions. This is still at the low end of M-REITS under our coverage (average gearing ratio: 32%), and should provide financing headroom of MYR380m before it hits the 50% gearing limit and needs to raise funds through equity. Management has a target of MYR100m in acquisitions annually.
• Earnings estimates. As the results are in line with expectations, we keep our earnings estimates unchanged. Our TP incorporates a 2% ESG premium, based on our in-house methodology. Key risks include: Delayed acquisitions, slowdown in economic growth, and lower-than-expected rental reversions.

Source: RHB Research - 23 Jan 2025