RHB Research turns positive on Pavilion REIT, upgrades stock to 'buy', ups target price to RM1.75

TheEdge Tue, Apr 06, 2021 04:09pm - 2 years View Original


KUALA LUMPUR (April 6): RHB Research has turned positive on Pavilion Real Estate Investment Trust (PREIT), noting that signs of a gradual uptick in shopper volume — despite closed borders — point to earnings growth, especially for FY22F.

The local research house has upgraded its call on the counter to "buy" from "neutral", as well as its target price to RM1.75 from RM1.46.

"We urge investors to look beyond near-term earnings weakness, especially in the case of Da Men Mall, as we believe the bottomed-out price presents a good opportunity to accumulate PREIT units ahead of a recovery," RHB Research's Loong Kok Wen said in a note today.

She has also raised its FY22 to FY23 earnings forecasts by 16% and 17% respectively. It is forecasting a net profit of RM227 million in FY22 and RM251 million in FY23 for PREIT.

The analyst noted that despite the challenges brought by Covid-19, Pavilion Kuala Lumpur only saw a marginal downward revision of 0.2% in its asset value in FY20. She noted that PREIT is currently trading at 1.10 times its FY21 price to book value, which is below its five year mean.

Loong believes that this valuation is unjustified, given "Pavilion Kuala Lumpur's asset quality and the prospect of a recovery for PREIT's other malls". She views that the share price weakness presents a good opportunity to buy more units in PREIT at a relative discount.

The analyst also opined that the PREIT's malls will see shopper volume increasing over the next 12 months. This trend will be helped especially due to the reopening of Malaysia's borders — which is forecast to take place in 2H21 at the earliest.

"We visited Pavilion Kuala Lumpur to get a better perspective of the situation at the mall following the relaxation of MCO (Movement Control Order) 2.0. We gathered from the security personnel at the main entrance that the headcount on weekends and public holidays can go well above 10,000 while weekdays saw heavier lunch crowds and footfall of 5,000-6,000 people.

"With the returning office crowd, we think the mall's weekday performance will be supported by lunch hour traffic. We also note that occupancy at Pavilion Kuala Lumpur has remained stable during the past year, at >90%," she said.

RHB Research also noted the downside risks of imposition of a MCO and a delay in the vaccination progress.

Units in PREIT were 0.71% or a sen higher at RM1.41 at 3.13pm, valuing it at RM4.3 billion.

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