PAVILION REIT (PREIT) may have clocked in a lower half-year earnings but AmInvestment Research (AmInvest) is still bullish over the stock on the back of improved economic sentiment and managerial decisions.
PREIT’s revenue and net profit were 31.1% and 65.2% lower respectively at RM203.14 mil and RM44.59 mil for the first half ended June 30 compared to RM295.04 mil and RM128.46 mil for the same period last year.
Weaker sales were due to, among others, the enforcement of the movement control order beginning March 18, further rent rebates from April to June 2020 given to tenants of non-essential services and supplies, and lower income from car park and advertisements.
But “management indicated a stronger 2HFY20,” AmInvest analyst Thong Pak Leng said in a July 24 note. Tailwinds include an improved economic sentiment as well as discontinued rebates by end-June.
“Also, Pavilion KL’s occupancy rate remained strong at 96.4% as of June 2020 versus previous year’s 95.6%,” Thong said.
Further, PREIT’s debt-to-asset ratio stood at 30% “and is still below the regulatory threshold of 50%,” he added.
At the current level, there is some headroom for PREIT to gear up for future acquisitions, said Thong.
Coupled with the diminishing rate of Covid-19 infections in the country as well as the government’s relief measures to boost consumer spending, PREIT’s long-term outlook remains positive, he added.
“We value PREIT at RM1.91 based on FY21 forward target yield of 4.5%. At its current price, the stock offers a potential upside of 19.4%, hence we maintain our buy recommendation,” Thong said. – July 24, 2020
