‘Buy’ stance retained on Pavilion REIT
RHB Investment Bank Bhd (RHB Research) remains positive on Pavilion Real Estate Investment Trust’s (Pavilion REIT) outlook on the back of strong retail sales.
It said Pavilion REIT’s fourth quarter core profit of RM65 million, which brought financial year 2022 earnings to RM246 million, was in line with expectations — at 104 per cent and 105 per cent of the firm’s and consensus’ estimates, respectively.
“Pavilion REIT’s financial year 2022 earnings met expectations, with numbers improving across all segments. With the retail sales momentum remaining strong, and Pavilion Kuala Lumpur well positioned to benefit from the increasing number of tourists, we remain positive on Pavilion REIT’s outlook.”
RHB Research noted that the retail blended occupancy rate had improved from 84 per cent in 2021 to 86 per cent, as all of Pavilion REIT’s shopping malls reported better numbers, although this was still below 2019’s blended occupancy rate of 93 per cent.
Pavilion Kuala Lumpur led the recovery, with net property yield for the quarter improving 19.1 per cent year-on-year and its occupancy rate growing to 91.6 per cent from 90.2 per cent in the fourth quarter of 2021.
Da Men Mall continued to be loss-making with a net property loss of RM7.1 million in financial year 2022, but Pavilion REIT hoped it would return to the black in financial year 2023 with new tenants.
“The blended rental reversion in financial year 2022 was at 4.05.0 per cent, with the management guiding for a higher 5.0-7.0 per cent rental reversion in financial year 2023 on the back of a strong retail momentum.
“With Pavilion REIT already reporting normalised earnings without tourists from China in financial year 2022, the reopening of the country’s borders is expected to provide another boost this year.”
RHB Research has adjusted its financial years 2023-2024 earnings forecasts by 4.0-6.0 per cent and introduced a financial year 2025 net profit forecast of RM382 million.
“The acquisition of Pavilion Bukit Jalil is expected to be completed in the second quarter of this year, and will help pare down the company’s reliance on Pavilion Kuala Lumpur,” it said.
RHB Research has maintained its “buy” call on the stock with a target price of RM1.57.