THE already tough retail environment which is further exacerbated by the recent implementation of the conditional movement control order (CMCO) will pose a challenge to Pavilion Real Estate Investment Trust (REIT).
In anticipation of subdued earnings, AllianceDBS Research has trimmed the earnings of the REIT to reflect lower revenue from both the Pavilion KL and Pavilion Elite Mall.
“Pavilion REIT’s earnings trailed expectations as income from Pavilion KL and Pavilion Elite Mall disappointed,” wrote analyst Siti Ruzanna Mohd Faruk in a company update.
“Recovery was slower than expected despite the implementation of the recovery movement control order (RMCO) in June.”
Pavilion REIT’s 3QFY2020 net income came in at RM32 mil or a shortfall of 46.1% year-on-year.
AllianceDBS Research expects the REIT’s 4QFY2020 results to remain weak given the rising number of COVID-19 cases, coupled with the rollback to the more stringent phase of CMCO on Oct 14.
“We expect the recovery to kick in from FY21 onwards but this will largely depend on the COVID-19 situation in Kuala Lumpur,” observed Siti Ruzanna.
“With the government encouraging work-from-home arrangements as well as minimal social activity, this could lead to a slower-than-expected recovery.”
All-in, AllianceDBS maintained its “hold” rating on Pavilion REIT but slashed its target price to RM1.25 (from RM1.35 previously).
Echoing a similar sentiment, MIDF Research has downgraded the stock to “neutral” from a “trading buy” previously with a downward target price revision of RM1.46 (previously RM1.73).
“We expect rental income and shopper traffic to be weaker in 4QFY2020,” noted analyst Jessica Low Jze Tieng.
The analyst expects the closure of the Malaysian border to dampen shopper traffic of Pavilion KL as tourists make up circa 30% of its footfalls.
“Besides, working-from-home order should also lead to lower footfalls of Pavilion KL and Intermark Mall,” she added.
As such, MIDF Research has revised its FY2020/2021/2022 earnings forecasts of Pavilion REIT by -13.9%/-7.7%/-14.2% with the expectation of lower rental income and higher maintenance cost going forward.
“We see the near-term outlook for Pavilion REIT’s malls to be challenging due to resurgence of COVID-19 cases,” added the research house.
At 10.40am, Pavilion REIT was down one sen at RM1.39 with 92,800 shares traded, thus giving the company a market capitalisation of RM4.24 bil. – Oct 23, 2020
