Malacca Securities Sdn Bhd maintained a HOLD recommendation UOA Real Estate Investment Trust (UOA REIT), after its 4QFY23 results announcement.
The research house, however, assigned a higher target price of RM1.21 as it rolled over to FY24.
“The target price is derived by ascribing a P/E of 14.0x to FY24f EPS of 8.67 sen. The group is committed to reward at least 90% of the distributable income of the trust,” it said in its Results Note today (Jan 23).
The independent research house said with the office space oversupply situation prolonged, the overall office space outlook may continue to stay on a neutral to downward bias tone going forward.
“Also, we opine that the overall portfolio occupancy rate may continue to range around between 81 and 85%, but should stay below the pre-pandemic level of 91.5% in FY19,” it said.
On UOA’s 4QFY23 results, it said that as the core net profit came in broadly within expectation, and maintained the earnings forecasts for FY24f and 25f.
For the quarter, Malacca Securities said that UOA REIT registered core earnings of RM11.6 million, bringing the core net profit to RM54.6 million for FY23.
“The core net profit was broadly in line with our estimates, accounting to 93.9% but below consensus expectations, accounting to 90% of consensus net profit estimates.
“Year-on-year (YoY ), the core net profit declined 14% from RM13.6 million to RM11.6 million due to lower rental revenue.”
This include from Wisma UOA II, a decline of 8%, Wisma UOA Damansara I, a decline of 23%, Wisma UOA Damansara II, a decline of 5%, and UOA Corporate Tower, a decline of 2% and higher direct operating expenses across most of the properties under UOA REIT (except Wisma UOA Damansara II) contributed by increased electricity costs and routine lift maintenance, it added.
Meanwhile, quarter-on-quarter (QoQ) core earnings fell 15.4% from RM13.7 million to RM11.6 million in tandem with the drop in overall rental revenue by 5.2% as well as higher property operating expenses as mentioned above.
Other results highlights is it core PATMI, which fell 10.2% from RM60.8 million in FY22 to RM54.6 million in FY23 on the back of slight drop in rental revenue and increased property operating expenses due to higher electricity costs across all the properties.
As for the dividend, for 4Q23, 3.86 sen income distribution was declared, with an ex-date of Feb 6.
“In 4Q23, besides Wisma UOA Damansara II and UOA Corporate Tower recording higher occupancy rate to 78% from 75% and 98% from 94%, respectively.
“However, the rest of the properties demonstrate a slowdown or neutral in their respective occupancy rate,” Malacca Securities added.
The risks to our Malacca Securities’ recommendation include slower-than-expected recovery in the rental activities due to the shift of working method post pandemic environment.
“Besides, should the Bank Negara Malaysia increase interest rate going forward, the group may incur higher borrowing cost. Aside from that, if there is further hike in electricity tariff, it could weigh on UOA REIT’s margins and overall financial performance moving forward.”
