Stronger operating conditions in 1QFY22
? 1QFY22 results were above expectations; core net profit surged 89% yoy.
? NPI margin was higher than expected, reflecting diminishing rental
assistance. Plans to acquire Pavilion Bukit Jalil are intact.
? Reiterate Hold rating with higher TP; FY22-24F dividend yields: 5.3-5.6%.
1QFY22 above expectations; core net profit surged 89% yoy
Pavilion REIT’s 1QFY22 core net profit made up 33-34% of our and consensus full-year
forecasts. The results w ere above expectations, driven by better-than-expected operating
conditions as a result of the easing of Covid-19 SOPs and improvement in consumer/retail
sentiment. Deviation w as the result of: 1) Further scaling back of rental assistance/rebate
to only selected tenants, 2) Positive impact of Chinese New year (CNY) festivities on retail
sales and footfall, and 3) Low er property operating expense. 1QFY22 revenue grew 10%
yoy (+11.7% qoq), anchored by a significant easing of rental assistance/rebates, w hich led
to a sequential rise in NPI margin from 66.5% in 4QFY21 to 68% in 1QFY22, a huge
improvement from 1QFY21’s 47% and above our forecast of 58.4%. Revenue grow th was
also anchored by stronger car park income due to higher footfall. Overall, 1QFY22 core
net profit of RM62m (excluding RM3.3m w riteback of impairment in receivables) surged
89% yoy (+14.4% qoq). 1QFY22 DPU of 2.2 sen made up 34% of our full-year forecast of
6.4 sen and w as above expectations.
Steady recovery path; plans to acquire Pavilion Bukit Jalil intact
Post the Omicron w ave in 1QFY22, w hich temporarily affected retail activities, w e are
optimistic on the retail sector’s recovery path in FY22F and expect retail footfall and tenant
sales recovery momentum to continue in the coming quarters to reach pre-pandemic
levels, supported by the reopening of international borders. The government’s decision to
further remove Covid-19 SOPs should enhance the vibrancy of the retail sector and
consumer sentiment. The group has set a higher average portfolio occupancy rate target
in FY22F vs. FY21’s 62-90% across all its assets, underpinned by improvement in tenancy
negotiations and renew als; potential +3% to +5% rental reversion is expected in FY22F
compared to the -3% reversion in FY21. Separately, DA MEN Mall’s performance showed
signs of improvement in 1QFY22, w ith negative NPI declining sharply by 86% yoy to –
RM0.3m. The mall could break even in FY23F on the back of various strategies to revive
occupancy rates. On acquisitions, w e believe it w ill take 6-12 months for the group to
finalise its plans to acquire Pavilion Bukit Jalil (opened in Dec 21).
Retain Hold call with higher TP
We raise FY22-23F EPS/DPU by 8.3-8.5% on higher NPI margin of 61-62% (54-59%
previously). We revise upw ards our DDM-based TP to RM1.36 on the higher DPU
forecasts (COE: 7.1%). Reiterate our Hold rating but supported by FY22-24F dividend
yields of 5.3-5.6%. Upside risk: potential injection of Pavilion Bukit Jalil. Dow nside risks:
w eaker earnings and sustained loses at DA MEN.