Analysts upbeat on Sentral REIT for attractive FY2024 yield

• RHB Bank also kept its "buy" call, with a dividend discount model (DDM)-derived target price of 91 sen.

KUALA LUMPUR (Aug 8): Analysts continue to be positive about Sentral REIT (KL: SENTRAL), noting its appealing yield compared to the sector average.

Maybank in a note on Thursday said Sentral REIT offers a favourable FY2024 net dividend yield of 7%, above the sector average of 5.6%. Maybank maintained its "buy" call on Sentral REIT with a lower  target price of 89 sen (from 98 sen previously).

RHB Bank also kept its "buy" call, with a dividend discount model (DDM)-derived target price of 91 sen.

“We reiterate our 'buy' call, due to Sentral’s attractive dividend yields — especially given a lower interest rate environment ahead,” RHB said.

“Sentral REIT’s 1H24 results are in line with expectations, with a marginal DPU growth YoY.

"Occupancy rates dipped QoQ following a lease expiry in Menara Shell, but should be stable moving forward as leases up for renewal in FY2025 consist of the REIT’s long-term tenants”, it added.

Sentral REIT’s 2Q2024 core net profit of RM20.5 million (+3.2% quarter-on-quarter, +16.4% year-on-year) brought its 1H2024 sum to RM40.4 million (+14.5% year-on-year).

Sentral REIT also declared an interim gross dividend per unit (DPU) of 3.21 sen, compared to 3.19 sen in 1H2023.

It noted Sentral REIT's 2Q2024’s year-on-year earnings growth was largely contributed by a new asset (Menara CelcomDigi) and new tenancy at Sentral Building 4, but partially offset by non-renewal of a tenancy at Menara Shell.

Conversely, Hong Leong Investment Bank (HLIB) maintained its "hold" recommendation with a higher target price of 79 sen (from 75 sen previously). 

“Our target price is based on FY25 forward DPU on a targeted yield of 9.2%, which is derived from 5-year historical average yield spread between Sentral REIT and 10-Year MGS”, HLIB said.

“We cut our FY24 forecasts by -2.0% as we assume lower occupancy for Menara Shell, while leaving FY25/26 forecasts unchanged”, it added.

HLIB said Sentral REIT's potential disposal of Wisma Sentral Inai remains a key re-rating catalyst.

"Wisma Sentral Inai is still in talks of being disposed. Should it come to fruition, we believe that it will help the group pare down its debts and lower its elevated gearing level of 44.5%," it added.

Meanwhile, Maybank IB said Sentral REIT will remain focused on tenant retention and continuous building improvements to drive organic growth.

“We understand that Sentral REIT is not dismissing opportunistic divestment of its properties and it continues to explore yield accretive acquisition strategies,” Maybank added.

Due to non-renewal of a tenant since end-May 2024, Maybank IB lowered Sentral REIT's FY2024/2025/2026E earnings forecast.

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