KUALA LUMPUR (Jan 18): Hong Leong Investment Bank Bhd (Heong Leong IB) said Malaysian real estate investment trusts' (REITs) share prices may face pressure from the imminent rise in the country's overnight policy rate (OPR).

In a note today, Hong Leong IB analyst Farah Diyana Kamaludin said the research firm had revised its share target prices (TPs) for REITs under its coverage. The list includes Axis REIT, IGB REIT and KLCCP Stapled Group.

"We expect an upward bias for the yields of the Malaysian Government Bonds (MGS) in view of the expected rise in OPR, which may lead to the narrowing yield spreads and placing pressure on REITs' share prices. Besides, the earnings for REITs may also face some downward pressure from higher borrowing costs and dampen the opportunity for future acquisition," Farah Diyana said.

She said Hong Leong IB expects Bank Negara Malaysia to raise interest rates as early as next week during its monetary policy committee (MPC) meeting on Jan 25, 2018. According to Bank Negara's statement, the central bank's MPC had during its latest meeting on Nov 9, 2017 decided to maintain the OPR at 3%.

Today, Farah Diyana said higher OPR expectation has prompted Hong Leong IB to revise its 10-year MGS yield assumption to 4.1% from 4%. She said the research house included the revised MGS yield assumption into its Malaysian REIT valuation.

She said Hong Leong IB maintained its neutral recommendation on Malaysian REITs given less attractive yields at current levels amid higher OPR expectation.

Farah Diyana said Hong Leong IB had revised its Axis REIT TP lower at RM1.54 while IGB REIT's TP was reduced to RM1.78.

Hong Leong IB, however, raised its KLCCP TP to RM7.76, according to her.

At about 2:40pm, Axis REIT and IGB REIT shares were traded at RM1.45 and RM1.61 respectively on Bursa Malaysia. KLCCP changed hands at RM7.86.