This article first appeared in The Edge Financial Daily on February 12, 2020
AmanahRaya Real Estate Investment Trust
(Feb 11, 74.5 sen)
Maintain neutral with a lower target price (TP) of 73 sen: AmanahRaya Real Estate Investment Trust’s (AmanahRaya REIT) core net income (CNI) for the financial year ended Dec 31, 2019 (FY19) was below our estimate — 89% of our full-year forecast. There is no comparison available. The negative deviation could be attributed to higher-than-expected property expenses. A distribution per unit (DPU) of 1.7 sen was announced, bringing the cumulative DPU to 6.2 sen.
AmanahRaya REIT’s CNI for the fourth quarter of FY19 was lower at RM5.2 million or 42.7% year-on-year (y-o-y), bringing the cumulative CNI to RM32.4 million or -7.4% y-o-y. Take note we have excluded fair value gains of investment properties in our CNI calculations.
The lower earnings were in line with AmanahRaya REIT’s lower top line (2% y-o-y) owing to a loss in rental income from the vacant Holiday Villa Alor Setar and Wisma AIC, mitigating contribution from Vista Tower.
AmanahRaya REIT’s lower borrowing cost (7.9% y-o-y) had partially helped earnings due to a term loan settlement and a reduction of the overnight policy rate (OPR). Nevertheless, the trust’s expenses were higher by 11.6% y-o-y for FY19.
Our FY20 and FY21 forecasts for AmanahRaya REIT are reduced by 1.3% and 1.4% respectively as our property expenses forecast is trimmed. We expect a neutral earnings outlook for AmanahRaya REIT.
Corresponding to our downward revision in earnings, our TP for AmanahRaya REIT is revised to 73 sen. Our valuation is based on a dividend discount model.
Our “neutral” rating for AmanahRaya REIT is maintained as we still believe the trust’s growth prospects will be subdued in the near term. Meanwhile, its gross distribution yield is attractive at 7.7%. — MIDF Research, Feb 11