江鱼仔 Investment: 2013-11-08 [FA][N] Pavilion REIT

Friday, 8 November 2013

2013-11-08 [FA][N] Pavilion REIT - Still On Double-Digit Growth Path

source: [i3investor]

Pavilion REIT - Still On Double-Digit Growth Path

Author: kiasutrader | Publish date: Fri, 8 Nov 15:07

Pavilion REIT (PREIT) continued to record double-digit y-o-y net profit growth in 9MFY13, boosted by incremental earnings from Pavilion Mall’s Fashion Avenue and full occupancy at Pavilion Tower. This growth trend is likely to continue into 4QFY13, spurred by the anticipated higher sales during the upcoming festive season. Maintain NEUTRAL and unchanged FV of MYR1.50.

Still chalking up double-digit net profit growth. PREIT’s 9MFY13 net profit of MYR159.2m (+10.3% y-o-y) was in line with expectations. Pavilion Mall (PavMall)’s new Fashion Avenue as well as full occupancy at Pavilion Tower continued to drive earnings growth. The sequential net profit growth was also boosted by a higher advertising income as well as percentage of rent income in relation to the higher sales generated by mall tenants. The REIT did not declare a distribution for 3Q13 as it distributes its dividends semi-annually.
An update. Management had previously indicated that PavMall’s major renewal for about 62% of total NLA is progressing well. We view the vacancy risk as minimal, and any non-renewal should provide opportunities to adjust its tenant mix. We maintain our 3-year rental growth forecast of 15%, in line with management’s guidance. We note that there may be a slight dip in revenue reported by the existing tenants in 4QFY13 as some of them took the opportunity to renovate their premises after renewing their tenancy. Generally, lots under renovation do not generate income. Nonetheless, we believe that the kick ing in of positive rental reversions on some tenancies as well as the anticipated higher sales during the upcoming school holidays and Christmas season will be sufficient to sustain PREIT’s earnings growth in 4Q13.
Maintain NEUTRAL and DDM-based FV of MYR1.50. Although we still like the REIT’s asset quality, we believe that investors have already priced in all of PREIT’s short-term catalysts. We reiterate that the REIT’s inorganic growth would only come in at end-2014 or early-2015, when some of its pipeline assets are to be injected.