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3QFY21: Stable earnings

Maintain BUY with targeted yield of 7.2%

3QFY21 and 9MFY21 earnings were within our expectations, but above consensus at 76%/85% of our/consensus FY21E estimates. We maintain our FY21-23E earnings and DDM-TP of MYR1.23 (Ke: 7.2%, LT: 1%). We continue to favour Sentral’s stable rental income from its long-term tenants. It also currently offers an attractive 7.2% FY21E net DPU yield. Maintain BUY.

Cushioned by lower finance cost and opex

3QFY21 core net profit was MYR22.1m (+3% YoY, 17% QoQ), taking 9MFY21 earnings to MYR61.7m (+2% YoY). Earnings growth YoY was driven by lower finance cost and operating expenses (i.e. utilities). These, however, were partly offset by lower rental income at several assets (-3%), due to lower occupancy (at QB3, Wisma Technip and Menara Shell), rental rebates and
lower carpark income (at Plaza Mont Kiara). Notably, portfolio occupancy was 91% (+0.5ppt YoY), with Menara Shell and Platinum Sentral at 96% and 80%, respectively (2QFY21: 99% and 80%).

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Earnings unchanged

Our FY21-23E forecasts remain intact, largely supported by stable occupancies at most of its’ office assets. To note, property expenses are expected to pick up in 4Q due to higher maintenance cost and repair works. Meanwhile, renewal rate for leases due in FY21 currently stands at 81% (~160k sf) (vs 73% in 2QFY21).

Stable outlook ahead

We remain positive on Sentral’s mid to long-term earnings outlook, supported by properties with long-term leases, which are expected to provide stable rental income, namely Platinum Sentral, Menara Shell, QB1, QB4, QB2 and Tesco Building. These properties are cumulatively contributing 51-53% to our FY21-23E revenue. Elsewhere, gross gearing was a relatively modest 0.37x (end-Sept 2021), supportive of future asset acquisitions.