2QFY22 earnings on track
Maintain HOLD
1HFY22 core net profit was within our estimates, at 55%/43% of our/consensus’ FY22E. 1st interim gross DPU of 1.89 sen was also declared. No changes to our earnings forecasts and DDM-TP of MYR0.95 (Ke: 8.5%). Maintain HOLD. We view that risk-reward remains approximately balanced while long-term prospects would come from strong DPU yields in FY23-24E of 8.6%-10.3%. We prefer Axis (AXRB MK, SP: MYR1.86, BUY, TP: MYR2.30).
Lifted by Australians hotels
2QFY22 core net profit was MYR36.9m (+21% YoY, -7% QoQ). This brings 1HFY22 core earnings to MYR76.5m (+20% YoY). YoY, the quarter’s core earnings were lifted by Australian hotels (+78%) due to the
quarantine/hotel isolation contracts by respective district governments and weaker MYR against AUD. Nevertheless, its occupancy and RevPAR (revenue per available room) dropped YoY, to 27% and AUD53, respectively (2QFY21: 58% and AUD73). Distributable income marginally increased by 2% YoY to MYR17.8m, after excluding rental variation adjustments for its Malaysian and Japanese properties of MYR20.6m.
No change to forecasts
Notwithstanding the rental variation adjustments, near term earnings are mainly supported by master lease assets from its Malaysian and Japanese properties. However, we remain cautious on its Australian hotels near term performances in the absence of the quarantine contracts. Pending YTLREIT briefing on 28 Feb, we maintain our forecast for now.
Expect strong DPU yields in FY23-24E
With regards the rental deferral programme (i.e. reducing the lease rentals by 50%, commencing 1 July 2020 until 30 June 2022), it should be noted that it does not involve any waiver of the rentals as the difference will be paid over FY23-29 (Fig 2). We forecast a strong net DPU yield of 8.6%-10.3% in FY23-24E attributed mainly to the repayment of rental variation adjustments and post-pandemic earnings recovery.