AmInvestment Bank Research cuts FV for Pavilion REIT, IGB REIT and YTL Hospitality REIT, increases it for Sunway REIT

KUALA LUMPUR (June 11): AmInvestment Bank Research has cut its fair value (FV) for Pavilion Real Estate Investment Trust (REIT) and IGB REIT, while increasing its FV for Sunway REIT.

In a note, the research house cut its FV for Pavilion REIT to RM1.59 from RM1.75 previously, while IGB REIT’s FV was reduced to RM1.89 from RM2.03. Meanwhile, Sunway REIT’s FV was increased to RM1.81 from RM1.64. On the other hand, YTL Hospitality REIT’s FV was lowered to RM1.11 from RM1.29.

For Sunway REIT, Pavilion REIT and IGB REIT, the research house rolled forward its base year to financial year 2023 (FY23), with a target yield of 5%.

For YTL Hospitality REIT, it applied a higher target yield of 7.5% to reflect higher earnings risk arising from its overseas assets.

“Our top pick for the sector is Sunway REIT. We like Sunway REIT for its diversified investment portfolio (which includes retail malls, hotels, offices, its university and hospital) and the large pipeline of potential assets for future injections,” it said.

On the whole, the research house maintained its "overweight" recommendation for the REIT sector.

It said REITs under its coverage provide distribution yields of more than 5% for FY22 and beyond when contrasted to the current low-interest environment rate.

At the same time, it likes the sector as a recovery play, which is poised to benefit from Malaysia’s post-pandemic economic growth.

That said, it may downgrade its sector call to "neutral" if footfall recovery is slower than expected, if there is a massive decline in occupancy rates due to increased competition from oversupply of retail spaces, and if consumer spending/sentiment deteriorates further or recovers slower than expected.

Moving forward, the research house is cautious that the implementation of the full movement control order (FMCO) with tighter standard operating procedures (SoPs) will dampen company earnings for the second quarter of the year (2Q21) as REITs are most likely to be pressured to give another round of rental support to tenants that are not allowed to operate during this period.

“However, we believe the market has priced in the impact of the latest movement restrictions. Looking beyond the lockdown, we believe REITs’ recovery remains strong once restrictions are lifted, underpinned by pent-up demand as consumers tend to 'revenge spend and gather', similar to what happened in the past.

"Apart from that, we also believe that earnings visibility and associated risks of the REITs are more positive compared to last year, thanks to the wide roll-out of vaccines both locally and globally,” it added.

For the recent first quarter, YTL Hospitality REIT’s earnings came in above the research house's expectations, while IGB REIT and Pavilion REIT’s earnings came in within expectations, and Sunway REIT’s earnings missed its expectations.

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