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Highlights:
Highlights:
- Neutral: We recommend Neutral based on our Dividend Discount Model (DDM), with our fair value pegged at RM1.15, derived from its DCF per share (WACC 6.56%) which is12.87% discount to NAV per share of RM1.32.
- Step up in occupancy and rental rates: New lettings and renewal of tenancies rates of Amfirst had contributed to the improvement in revenue. Gross revenue of propertiesheld under AmFirst Reits rose by 5.5% y/y to RM98.2mn in F10, with Menara Ambank alone contributing 48% of the total increment in gross revenue while other significant contributors are Bangunan Ambank group (20.6%) and The Summit USJ (26.53%).
- Less strenuous on their finance: Moving ahead, we expect a less strenuous on their finance from the renewal of tenancies. The reason being about 51% of their total tenancies will be up for renewal in FY10, compared to 21% in FY11 and 18% in FY12. Potential catalyst for growth will also come from their portfolio of properties i.e. Menara Merais with 55.5% occupancy rate as well as The Summit Retail and Office which maintained occupancies rate of 82.8% and 66.0%.
- Low interest rate environment remains favorable for REIT: Although gearing level stood at 40% as at 31 Mar 2010 (39.2% in FY2009), they managed to lower the interest expenses by 23.8% y/y to RM13.07mn in FY10 by securing lower interest bearing liabilities. Moving forward, we expect their gearing levels will come down to between 30% to 35% by utilizing part of their retained earnings.
- Realized net income swelling to RM41.9mn and distribution unit increased by 11.4% y/y: Excluding unrealized net income which comprise of revaluation surplus of properties, net income rose by 11.7% y/y to RM41.9mn. Revaluation surplus was RM12.1mn in FY10 and RM141.5mn in FY09. Improvemen t in realized net income was due to the step up in gross revenue and lower interest income which made up 58.4% of total admin cost in FY10 compared to 71.4% in FY09.
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