Analysts trim Sentral REIT earnings forecasts on lower occupancy, but flag attractive yield

• Calls on the REIT’s units remained mixed following the latest quarterly results, although analysts flagged its appealing distribution yield as compared to the sector average.

KUALA LUMPUR (Aug 8): Analysts have trimmed their earnings forecasts for Sentral REIT (KL:SENTRAL), following a lease expiry at Menara Shell in May, but see limited downside risk to occupancy rates in the medium term.

Calls on the REIT’s units remained mixed following the latest quarterly results, although analysts flagged its appealing distribution yield as compared to the sector average.

Maybank in a note on Thursday cut its earnings forecasts by 7% for the financial year ending Dec 31, 2024 (FY2024), 4% for FY2025 and 4% for FY2026, due to the non-renewal of a tenant.

The house lowered its target price to 89 sen, from 98 sen, but maintained its 'buy' call on the counter.

Maybank also flagged its FY2024 net dividend yield forecast of 7%, above the sector average of 5.6%.

Meanwhile, HLIB Research cut its FY2024 forecast by 2% on assumptions of lower Menara Shell occupancy, “while leaving our FY2025 and FY2026 forecasts unchanged”, it said.

The research house, however, raised its TP to 79 sen from 75 sen, based on its FY2025 distribution per unit forecast of 7.2 sen (a yield of 9.2% at the time the research note was issued), “which is derived from the five-year historical average yield spread between Sentral REIT and 10-year Malaysian Government Securities”.

HLIB nonetheless maintained its 'hold' call on the counter.

The two research houses pointed to Sentral REIT’s plan to divest of its assets, with HLIB highlighting that the potential of Wisma Sentral Inai — currently vacant — remains a key rerating catalyst.

“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%," the house added.

RHB Research, separately, maintained its 'buy' call, with a TP of 91 sen, based on its FY2025 dividend forecast of seven sen per unit.

“At this juncture, downside risks to occupancy rates are limited; 18% of NLA (net lettable area) will be up for renewal in FY2025, and these mostly consist of the REIT’s long-term tenants in Cyberjaya,” the house said.

CIMB Research, which had resumed its coverage of the REIT, pegged its TP at 84 sen, with a 'hold' call and FY2025 dividend forecast of 6.4 sen.

For the first half ended June 30, 2024 (1HFY2024), Sentral REIT posted a 30% increase in net property income to RM76.06 million, from RM58.49 million a year ago, led by contributions from newly acquired Menara CelcomDigi.

Gross revenue rose 26.5% to RM96.24 million from RM76.09 million, the REIT showed in a bourse filing.

Distribution per unit totalled 3.21 sen for the period, from 3.19 sen a year earlier.

Of the six analysts covering the stock at the moment, four have 'hold' calls, while two have 'buy' ratings, with TPs averaging 85 sen.

The commercial REIT closed at 80.5 sen on Thursday, giving it a market capitalisation of RM962.4 million. It is up 2.55% this year.

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