Maybank IB notes that Pavilion REIT's 2Q24 net profit and 1st interim gross DPU of 4.53sen were within its estimates, where 1H24 net profit was at 49%/44% of its/consensus' fullyear forecasts. YoY earnings growth was mainly driven by new asset – Pavilion Bukit Jalil. The house keeps the earnings forecasts and DDM-TP of MYR1.55 (Ke: 8.3%) and maintains a BUY call.
Mainly lifted by Pavilion Bukit Jalil
The second quarter results growth was mainly attributed to new property, Pavilion Bukit Jalil, that was acquired on 1 June 2023, and Pavilion KL due to improved occupancy rates to 96.4% (+2.5ppts). This however was partially offset by loss of advertising income from Elite Pavilion Mall (-20% NPI) due to upgrading of the LED screen (will re-commission in 3Q24), higher operating expenses (+38%) incurred for the new property and higher utilities cost due to subscription of green electricity tariff from Tenaga Nasional. 2Q24's NPI growth was 19% YoY to MYR120m, but at a lower NPI margin of 59.6% (-3.5ppts). For 1H24, distributable income was MYR165.8m (+19% YoY).
PBJ is next growth catalyst
Management targets for Pavilion Bukit Jalil's occupancy to achieve 92% by end-2024 (from current 87.8%). About 54% of the tenancies are due for renewal in 4Q24, where ~70% of the existing tenants intend to renew. Indicative rental reversion is between 5%-10%. To recap, PBJ is targeted to achieve an annual NPI of MYR146m by Jun 2025 (1H24: MYR52.4m).
The house maintains its earnings forecasts. The near-term earnings growth forecast comes from both Pavilion KL, due to its prime location, and PBJ. However, Maybank is also cautious on Da Men Mall which could continue to face stiff competition from surrounding malls. PREIT's gross gearing was decent at 0.38x as at end-Jun 2024.